Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Oral Answers to Questions — EMPLOYMENT

School-Industry Compacts

Mr. Anthony Coombs: To ask the Secretary of State for Employment if he will make a statement on the progress of school-industry compacts.

The Parliamentary Under-Secretary of State for Employment (Mr. Robert Jackson): There are 51 compacts in operation in inner-city areas across the country and a further 10 compacts in development. The network of inner-city compacts is therefore almost complete. We have made tremendous progress in the three years since the initiative was launched. As I have seen for myself, those compacts are harnessing the enthusiasm and commitment of young people and employers to help ensure we have the qualified and flexible work force that we need for the 1990s.

Mr. Coombs: I welcome the undoubted success of the schools-industry compacts programme. Does my hon. Friend agree that the links between industry and wider education are equally important? Does he welcome the news this morning that the Ford company's employee promotion programme has no fewer than 20,000—almost half its work force—signed up? Is that not evidence of the sort of improvements in industry and education that can result in a great increase in skills?

Mr. Jackson: My hon. Friend is right about the importance of the links between education and business in the wider sense. That is one reason why we have put an additional £3·5 million into that initiative this year. My hon. Friend referred specifically to the case of Ford, and I have talked to that company about its scheme, which is impressive. Similar arrangements have been initiated in a number of different companies, which is most welcome. One of the most interesting features is that Ford undoubtedly underestimated the extent of the demand for that facility. That shows that there is a latent demand in the work force for education and training, and we hope to build on that.

Catering Industry

Mr. French: To ask the Secretary of State for Employment what proposals he has to improve training standards in the hotel and catering industry.

Mr. Jackson: The employers in the hotel and catering industry are necessarily in the lead in ensuring that the industry's standards of training are adequate to meet their business needs. From February of this year, the industry has had an independent, employer-led industry training organisation—the Hotel and Catering Training Company. I am confident that the work of that body will raise the standards of training in the industry.

Mr. French: Many hotels that purport to offer three, four or five-star service are failing to employ adequately trained staff to fulfil certain basic functions, such as porters to carry bags, waiters to carry food and banqueting staff with an understanding of banqueting. Will my hon. Friend ensure that national vocational qualifications in the United Kingdom produce staff of comparable or better quality than those being produced in the catering industries of Germany and France?

Mr. Jackson: I hope that my hon. Friend has not had an unfortunate experience. It sounds as though there might be some personal background to his remarks. The Government's responsibility does not extend as far as my hon. Friend wants. We are responsible for the National Council for Vocational Qualifications, which has developed a vocational standard called Caterbase. It is a good standard, which has been developed and widely taken up.
May I make a practical suggestion? My hon. Friend is fortunate in having, as a member of his local Gloucestershire TEC, Mrs. Sam Elliott, who is the proprietor of the Grapevine hotel in Stow-on-the-Wold. She won a national training award last year and she is also a member of the national training task force. I suggest that my hon. Friend has a word with her.

Tourism

Mr. Fearn: To ask the Secretary of State for Employment when he last met the chairman of the National Trust to discuss tourism.

The Parliamentary Under-Secretary of State for Employment (Mr. Eric Forth): My right hon. and learned Friend has not met the newly appointed chairman of the National Trust to discuss tourism. He has, however, met the trust's director general in the context of the tourism and environment initiative mounted by my Department and the English tourist board.

Mr. Fearn: Is the Minister aware that this year the National Trust, with its parks, gardens and houses, has given the tourist industry one of the biggest boosts that it has ever had? As the National Trust's conservation and maintenance costs have risen and its agricultural revenue and Government grant have fallen by £1 million, is there any help that the Government can give?

Mr. Forth: I would join the hon. Gentleman, as I am sure would every hon. Member, in his admiration and praise for the work that the National Trust does, has done in the past and will continue to do. As the hon. Gentleman no doubt knows, my colleagues in the Department of the Environment are funding the National Trust to the tune of some £800,000 in the current year. As with many other good causes, one could always make a case for more funding, but the hon. Gentleman has put his finger on the real point, which is that the National Trust is perhaps


uniquely placed to raise a lot of revenue from those who support it and its activities. That it is doing and will continue to do, and I believe that that is the direction for the future.

Mr. Simon Coombs: Will my hon. Friend take this opportunity to congratulate the National Trust on its important contribution to the recently published report on tourism and the environment? What steps do the Government intend to take to ensure that the many excellent recommendations in that report are put into practice in future?

Mr. Forth: Indeed, the National Trust played a key part in that exercise, of which my Department was rather proud, because we felt that we identified early on the creative tension which exists between environmental matters and the demands of tourism. In that report which was published on 1 May, we identified recommendations such as wider dissemination and application of visitor management techniques and a partnership approach well exemplifed by the role of the National Trust. As my hon. Friend would expect, we shall be carrying that forward in order to ensure that the jobs and benefits of tourism do not run counter to the requirements of the environment.

Mr. Skinner: Have the 70 paintings and the 22 pieces of silver that finished up at No. 10 Downing street when the previous Prime Minister was in office, many of which were taken from National Trust homes, now been restored to their rightful places? If not, it is high time they were.

Mr. Forth: For a moment, I thought that the hon. Gentleman was harking back to the days of the Greater London council when he spoke about the missing silver, but in fact the hon. Gentleman was reminding the House of the respect and regard my right hon. Friend the Member for Finchley (Mrs. Thatcher) has for the national heritage and the fact that, as one would have expected, she was keen to ensure that our national heritage was well represented at No. 10 Downing street. Anyone who believed otherwise could only be in the same carping mode as I am afraid we find the hon. Gentleman.

Picketing

Mr. Arbuthnot: To ask the Secretary of State for Employment how many representations he has received in the last 12 months on picketing.

Mr. Forth: Some half a dozen such representations on picketing have been received. I believe that one reason why that number is so small is the success of our legislation in bringing to an end the violent and intimidatory picketing which disfigured industrial relations in the 1970s. None of the representations has sought the legalisation of secondary picketing.

Mr. Arbuthnot: As my hon. Friend has had no representations about bringing back secondary picketing, one of the curses of the 1970s which ended in the winter of discontent, does he agree that it is appalling and horrifying that the Opposition want to re-legalise it?

Mr. Forth: My hon. Friend makes an important point which I am sure the House and people beyond it will want to note, and that is that, given the staggering success of the industrial relations legislation that the Government have introduced in a careful and planned way, particularly the

elimination of the evils of secondary picketing and its violence, the mere suggestion that Opposition Members might want secondary picketing to be brought back is so outrageous that I am sure that the electorate will take due note of that at the appropriate time.

Social Charter

Mr. Tony Banks: To ask the Secretary of State for Employment if he will make a statement on progress towards the implementation of the social charter.

The Secretary of State for Employment (Mr. Michael Howard): The social charter signed by the 11 other member states was only declaratory and has no legal effect. The European Commission has to date published 21 legislative and other proposals under its social action programme. Of those, five have been agreed so far. The United Kingdom continues to play a full and active part in the discussions. For example, at yesterday's informal meeting of European Community Employment Ministers, I put forward a five-point initiative designed to increase effective employee involvement, including a European Community recommendation on best practice. There was useful discussion of that issue, and it was agreed that consideration of my proposal should continue in the months ahead.

Mr. Banks: It is obvious that the Secretary of State is speaking and acting far more moderately, in this post-Finchley age, in respect of the social charter. Does he accept the importance of the social dimension as a factor in the Single European Act? Will he persuade the Council of Ministers and the Commission to become actively involved in renegotiating the Council of Europe's social charter, and the Commission to accede to the Council of Europe's charter—to which our country is a major signatory?

Mr. Howard: Perhaps the hon. Gentleman will allow me to allay his anxieties. There has been no change whatsoever in the attitude adopted by the United Kingdom Government in the Social Affairs Council of Ministers during the whole of the period in which I have had the honour to represent this country at that Council. The hon. Gentleman is right to draw attention to the importance of the social dimension of the Single European Act programme. Its most important aspect, bearing in mind the fact that 15·5 million people are without jobs in the Community, is the creation of employment. My main task at the Council of Ministers is to do all I can to ensure that the Community does nothing to place extra burdens on British employers, which would destroy jobs in this country and in other Community states.

Mr. Grylls: Will my right hon. and learned Friend be wary of any proposals from the Social Affairs Council of Ministers, which seems to be caught in a 1960s time warp in believing that its policies would help to create jobs, when the reverse is true—they would help to destroy them? Will my right hon. and learned Friend be particularly careful about any further bureaucractic proposals from the Commission affecting temporary or part-time workers? If they are tied up in more red tape, there will be fewer and fewer jobs for them.

Mr. Howard: I entirely agree, and I am happy to tell my hon. Friend that the proposed directive relating to


part-time work was not even discussed at yesterday's informal meeting of the Council. I shall continue to keep uppermost in my representations to the Council the need to encourage and enhance employment, reduce regulation, and avoid damaging measures that would increase the number of unemployed in the Community.

Mr. Tony Lloyd: Will the Secretary of State confirm that among the Government's reasons for opposing the social charter is that it would necessitate freedom of association—in other words, because people would be allowed to join the trade union of their choice? That would force the Government to reconsider their decision not only to destroy jobs at GCHQ but to undermine the civil liberties of those who worked there and who were sacked for the crime of joining a trade union. Will the right hon. and learned Gentleman further confirm that the Government have already acknowledged that right by international treaty, through their support of International Labour Organisation conventions and of the United Nations declaration on human rights? How does the Secretary of State intend to respond to the latest criticism made by ILO experts that Britain is again in the wrong in its attitude to the social charter? Will he now allow the people employed at GCHQ to become members of a free trade union?

Mr. Howard: I am absolutely astonished that the hon. Gentleman and the Labour party should have the gall to come to the House and talk about restrictions on people joining the trade unions of their choice. What is the hon. Gentleman's attitude, and that of the Labour party, to the Bridlington agreement? How dare the hon. Gentleman come to the House and pretend, with his party, to be the protector of people wishing to join the trade union of their choice?

Older Workers

Mr. Cran: To ask the Secretary of State for Employment how many men and women in the labour force are aged 55 years and over.

Mr. Jackson: It is estimated from the preliminary results of the 1990 labour force survey that, in the spring of that year, there were 2,168,000 men and 1,289,000 women in the labour force aged 55 and over.

Mr. Cran: Does my hon. Friend agree that it is disgraceful that a considerable number of companies still practise age discrimination and consequently turn their backs on a not inconsiderable pool of talented labour who happen to be over 55 years of age? Does he also agree that employment should principally be on the basis of merit and nothing else? If so, what is he doing to encourage companies to change their minds and to clean up their employment practices?

Mr. Jackson: My hon. Friend is absolutely right. Companies should eschew such unnecessary discrimination. The Government seize every opportunity to argue that, and I have made several speeches on the issue. My hon. Friend might have been thinking about a Bill that has been drafted which suggests that there should be legislation on the issue, but we do not believe that legislation would help, for the practical reason that there are circumstances—a limited number, admittedly—in which the age of a person may be relevant to the job. It

would be impossible to write all those exceptions into a statute, which is why we do not believe that legislation would be the right approach. Persuasion, not compulsion, is the right approach and we shall continue to do all that we can to persuade.

Mr. Bermingham: But does the Minister agree that the period from 1980–91 has shown that, for people of 50 years of age and over who have been made redundant or otherwise put out of work, it is increasingly difficult to find re-employment? Does he also agree that that is a disgraceful waste of talent, experience and other knowledge? Will he take positive steps for once to stop the bleeding of and drain on our national resources caused by the under-employment of the over 50s?

Mr. Jackson: I said that we agreed that there is a drain. The hon. Gentleman has to set the circumstances against the background: about 3 million more people are employed in Britain now than was the case a decade ago, but it is true that there has been a slight decline in the proportion of the labour force aged over 55. Whether the cause is as the hon. Gentleman said or whether it is because of the increased personal income and wealth which enables more people to retire earlier is a question to which we do not have the answer. The hon. Gentleman is right that we should be concerned, but we can agree that there would be practical difficulties in the way of legislation.

Mr. Rowe: Let me assure my hon. Friend that a substantial number of people aged 55 and over are finding it unreasonably difficult even to get an interview for a job. Given the manifest fact that many people in that age group have experience, loyalty and skills which are superior to those of much younger people, will he do his level best to ensure that he keeps those of his colleagues who are also in that age group in their jobs by making it clear to employers that they should take a favourable view of people of that age?

Mr. Jackson: The Government employ many such people in the civil service, but we do not employ such practices. The issue must be dealt with in the relationship between the employer and the employee. The Government can urge, explain and argue, and can draw the attention of employers to the facts to which my hon. Friend refers, but it must be a matter between the employer and the employee. We do not believe that legislation would help.

Mr. McLeish: Is the Minister aware that a large proportion of men and women over 50 in the labour force are unemployed? Why then, last year, did about 500,000 people join the dole queue? Why has his Department administered the most savage cuts in training since the war? Why is he not now going to the Treasury to demand more money for the unemployed? Is it because the Government do not care about unemployment?

Mr. Jackson: The hon. Gentleman knows perfectly well that the level of unemployment is essentially decided as a consequence of the wage settlements reached in negotiations between employers and employees. The Government have repeatedly pointed out that the trend of wage settlements has been too high overall to be afforded in the light of the increase in productivity. It would be


useful if the hon. Gentleman were to join us in arguing that case rather than attempting to pin the blame where it cannot be pinned.

Manufacturing Industry

Mr. Lewis: To ask the Secretary of State for Employment what measures he proposes to improve manufacturing employment in the Bolton/Bury travel-towork area.

Mr. Howard: The employment service and the Bolton and Bury training and enterprise council operate a wide range of services and programmes to help improve the employment prospects for unemployed people in the area. It is employers who create jobs, whether it is in the manufacturing sector or other sectors of the economy.

Mr. Lewis: The Secretary of State will not be surprised to know that I think that that was, as usual, a bogus answer. Does he not realise that since 1979, 1,000 manufacturing jobs a year have been lost in the Bolton-Bury travel-to-work area, which includes my constituency? Does he not realise that the jobs that have been created, which are part time and low paid, such as stacking shelves in supermarkets, are no way to treat the cradle of the industrial revolution?

Mr. Howard: Why is the hon. Gentleman so determined to paint his area in the darkest possible light? Why does he not talk instead about the reduction in unemployment of 41 per cent. since July 1986? Why does he not talk about the almost 2,500 young people who are receiving training in the Bolton and Bury area, almost 80 per cent. of them qualifying or receiving further training after they have completed their youth training? Why does he not talk about the 500 people in his area who currently benefit from the enterprise allowance? Why does he not talk about the £4 million that is spent through the urban programme in his area, or about the £19 million that has been spent through regional selective assistance since 1979? Why does he not tell the world the good news about his area, instead of darkening its image in such a damaging way?

Oil Well Fires

Mr. Dalyell: To ask the Secretary of State for Employment what advice the Health and Safety Executive has given about fire-fighting training in relation to oil wells.

Mr. Forth: Before 1 April 1991, the executive was responsible only for health and safety at onshore oil and gas drilling operations. Since that date, the executive has also taken on regulatory responsibility for health and safety of offshore oil and gas installations.
No specific advice regarding training for fighting oil well fires has been given. It is the responsibility of operators of oil and gas operations to ensure that the work force are given the appropriate level of training to enable them to use safely and effectively the fire-fighting equipment provided.

Mr. Dalyell: Does the Minister undertake to write me a detailed letter about the advice that the Health and Safety Executive is giving to the British Army medical team working out of Ahmadi hospital in Kuwait and to the 700 Royal Engineers who are working in appalling

conditions of hydrogen sulphide and of photochemical smog where, without being alarmist, there is a real danger of carcinogenic results?

Mr. Forth: I fully understand the nature of the hon. Gentleman's question. From the Dispatch Box, I should normally be only too delighted to undertake to write him the detailed letter than he invites. In this circumstance, I should, before I gave that undertaking, have to establish that it is for the Health and Safety Executive to be involved in the matters that the hon. Gentleman has raised. I undertake to look at that most carefully and to establish whether it is the responsibility of the Executive and of my Department, or whether the responsibility that the hon. Gentleman has raised lies elsewhere, in which case I should advise him of that matter.

Mr. Devlin: Why does the Health and Safety Executive have to advise oil platform operators of its intent to visit? Why should not it be allowed merely to conduct a random spot check, unannounced, as it would do on land? Surely that would be better for the offshore industry.

Mr. Forth: My hon. Friend raises an important and interesting point. This is a matter such as we shall examine when the Health and Safety Executive develops its new responsibilities for the offshore oil industry. I will take up the very point that my hon. Friend has made as we develop the new regulations and as we identify the best way in which we can guarante the same level of health and safety offshore as we have come to expect onshore.

Manufacturing Industry (Redundancies)

Ms. Armstrong: To ask the Secretary of State for Employment what proportion of redundancies in the last year were in manufacturing industry.

Mr. Howard: During the 12 months to January 1991, 65 per cent. of all confirmed redundancies were in manufacturing industries.

Ms. Armstrong: Does not this signal a very dire state for the British economy and for the future of British industry? In the early 1980s, we were told that manufacturing industry was being sorted out so that it would be ready to compete with the rest of Europe. Now the Minister tells us of major cuts in employment. It is also true that there has been a £7 billion downturn in manufacturing output since last March. What are the Government going to do to support employment of the highest calibre in manufacturing industry and to give this country a chance?

Mr. Howard: The hon. Lady overlooks a significant difference. It is that while manufacturing employment fell during the lifetime of the Labour Government, as it has during the lifetime of the present Government, manufacturing output fell during the Labour Government while it has risen during this Government. That is the best possible tribute to the effectiveness of the Government's policies.

Mr. McCrindle: In contrast to what the hon. Member for Durham, North-West (Ms. Armstrong) said, does my right hon. and learned Friend agree that during this recession, unlike previous periods of economic downturn, the proportion of redundancies in white-collar jobs has risen considerably? Has my right hon. and learned Friend


any thoughts on when he would expect an upturn in the service industries? What message would he wish me to give my constituents, who are suffering quite considerably?

Mr. Howard: I refer my hon. Friend to the survey that has been published by the Institute of Directors. The results show a remarkable turnround in the confidence of its members and provides extremely encouraging evidence that the turnround will come soon. I am sure that my hon. Friend will share my view that the most damaging thing that could happen to employment prospects would be the imposition of a national minimum wage, which would destroy up to 2 million jobs. If the hon. Member for Sedgefield (Mr. Blair) rises on this question, I hope that he will explain to the House how he would avoid the consequence that as the minimum wage is increased as a proportion of the average wage, the average wage in turn increases and we embark on a never-ending cycle of job destruction.

Mr. Blair: With unemployment increasing faster than in any other country in the western world, and when the summer will inevitably see a further round of closures, cuts and redundancies, when will the Secretary of State fight for his Department's budget? The money that is spent on training the unemployed is, in real terms, half what was spent when unemployment was last at 2 million. Or is it simply the case that the unemployed have become the forgotten people of this Government?

Mr. Howard: What a pity that the hon. Gentleman did not take the opportunity to answer the question that I put to him. Perhaps he thought that it was a sort of warm-up question that he was not obliged to answer. The hon. Gentleman put a statistic in his question—he has used it repeatedly in recent days—on my Department's budget. It is entirely untrue and entirely unfounded. I challenge him to produce the figures on which the assertion is based. We are producing a range of measures to help the unemployed back into work which is wider than that which has ever existed.

Tourism (Northumberland)

Mr. Amos: To ask the Secretary of State for Employment if he will meet the chairman of the Northumbria tourist board to discuss the further development of tourism in Northumberland; and if he will make a statement.

Mr. Forth: My noble Friend Viscount Ullswater, who has ministerial responsibility for tourism matters within my Department, will meet officers and members of the Northumbria tourist board on 14 May. I welcorne the board's new five-year strategy and the increased participation in its work by the private sector, which should assist the development of tourism in the region.

Mr. Amos: I am pleased to hear about the meeting on 14 May. As Northumberland is the most beautiful of counties, can my hon. Friend give more details of the measures that he is taking to make the promotion of tourism in Northumberland more effective both within the United Kingdom and overseas?

Mr. Forth: I am delighted that my hon. Friend has taken the opportunity to praise the area which he represents. It is something that Conservative Members do

whenever the opportunity arises and which Opposition Members signally fail to do. My hon. Friend is right to draw attention to the many measures that are being taken, including the recent changes to the tourist board's constitution and the setting up of a commercial members group, both of which are positive and welcome steps. Many other measures are being taken. The key to them—this illustrates the forward-looking and positive nature of the board—is the way in which it is working with the English tourist board, with local commercial interests and with local authorities to ensure that there is a co-ordinated approach in praising the very aspects of the region to which my hon. Friend has drawn attention. That is the way forward. I wish that many other tourist boards would follow the example of the Northumbria tourist board.

Mr. Beith: Does the Minister accept that tourism is important to the economy of rural Northumberland? Does he recognise that the removal of section 4 grants has weakened the ability of the industry to invest and that the 10·9 per cent. increase in the uniform business rate is hitting many small businesses in the tourist trade quite hard?

Mr. Forth: I do not accept the hon. Gentleman's point. The opening of the £20 million Copthorne hotel and the £7 million Novotel in Newcastle in 1990—to take just two examples from the hon. Gentleman's region—illustrate the general point that the inducements that were available under section 4 were not necessary to allow investment to be sustained. It is possible and likely that up and down the country we shall see a continued level of investment without the inducements that section 4 offered.

Special Needs Training

Mr. Andrew Smith: To ask the Secretary of State for Employment if he will make a statement on youth training for young people with special needs.

Mr. Jackson: All young people under 18 who are not in full-time education or employment are guaranteed the offer of a suitable training place. This includes those who have special training needs. Training and enterprise councils are required to set out in their plans how they intend to meet this guarantee. My Department monitors delivery of these plans and has produced guidance to help TECs with training for people with special needs.

Mr. Smith: If that is the case, why are centres, schemes and places which provide such training being closed throughout Britain? Schemes being closed include the National Association for the Care and Resettlement of Offenders scheme which served my constituency and, indeed, the Minister's constituency. Is not it utterly repugnant that youngsters with special needs should pay the price of government cuts in training? Is not it time that the Minister not only mouthed the guarantee but acted on it so that all youngsters had real entitlement to quality training appropriate to their needs?

Mr. Jackson: The hon. Gentleman is confusing the network of providers with the position of individual people. The hon. Gentleman and his party are in no position to lecture us about training young people. When the Labour party was last in office, it provided a training


programme on which there were only 6,000 places. The Government now provide, through youth training, some 350,000 places for young people.

Mr. Robert B. Jones: Will my hon. Friend join me in praising the work of the Elfrida Rathbone Society in dealing with special needs? Does he agree that, as at least some of the people involved are receiving training in life skills rather than training directed at the labour market, it would be more appropriate if such training were dealt with not by the Department of Employment but by the Department of Health or the Department of Social Security?

Mr. Jackson: I am happy to join my hon. Friend in paying tribute to the Elfrida Rathbone Society. I know something of its excellent work. My hon. Friend makes an interesting point about the division of responsibility between the Departments. Clearly, there is a difficult interface between training for employment in the labour market and training which is intended to help people to continue their lives. My hon. Friend is right that we should keep the matter under review, but meanwhile we have a responsibility. Through our arrangements and our contracts with the training and enterprise councils, we are in a position to discharge that responsibility.

Mr. Leighton: Is not it the case that young people with special needs in the London borough of Newham and Essex have few opportunities because, as the Newham Recorder has reported, the youth training guarantee is not being honoured and hundreds of young people are leaving school without a job or a YT place? What is the Minister's explanation for that disgraceful situation? What action will he take to rectify it?

Mr. Jackson: Unusually, the hon. Gentleman is completely wrong. Some concern was expressed about the ability of Essex training and enterprise council to fulfil the guarantee. We investigated the matter and took appropriate action. Among other things, the TECs are contracted to deliver the guarantee; they are funded accordingly and will deliver the guarantee.

Sir Anthony Meyer: Does my hon. Friend accept that the concern expressed by my hon. Friend the Member for Hertfordshire, West (Mr. Jones) is widely shared? Such people may fall between two stools and benefit more socially than industrially. Is there any basis for recent press reports that the possibility of reviving the community programme is being studied?

Mr. Jackson: I promise my hon. Friend that, according to the boundaries mentioned in an earlier question, we shall keep the position under review. The Government are always reviewing the options open to them in the labour market, but we have no plans to introduce a temporary work scheme [Interruption.]

Mr. Speaker: Order. I ask the House to listen to Employment questions.

Mr. Fatchett: Does not the Minister realise how complacent and out of touch his answers sound? Up and down the country, those who are involved in running training and enterprise councils and voluntary organisations say that because of the cuts in the Department's training budget more and more young people with special needs are experiencing difficulty in obtaining a place on a

training course. Is not it typical of the Government that they put at risk the most vulnerable and disadvantaged young people in our society?

Mr. Jackson: This is another one of the Labour party's cuts. Expenditure on youth training has increased by £38 million this year.

Trade Union Certification Officer

Mr. David Evans: To ask the Secretary of State for Employment if he will make a statement on the work of the trade union certification officer.

Mr. Forth: The Certification Officer for Trade Unions and Employer Associations is an independent authority appointed under statute. He has a number of functions, which include ensuring that trade unions keep proper accounts, ensuring observance of the law on union mergers, reimbursing certain costs of unions' postal ballots and dealing with complaints about union executive elections and membership registers. Copies of the certification officer's annual report for 1990, which was published on 16 April, are available in the Library.

Mr. Evans: I thank my hon. Friend for that reply. Does he agree that the certification officer's workload should be lightened by following the best practice in Europe, as advocated by the Labour party, and banning contributions from trade unions to political parties? Does he agree that the certification officer needs more staff to ensure that the fiasco that took place in the union that sponsors the Leader of the Opposition does not take place again?

Mr. Forth: My hon. Friend, typically, shows a close interest in and care for the work of the certification officer and I am glad that he has brought it to the attention of the House. May I take the opportunity to pay tribute to the work of the certification officer and to assure my hon. Friend that, as in many other matters of industrial relations legislation, we shall keep this under the closest possible review? When evidence shows the need for action, we shall not hesitate to take it.

Women Part-time Employees

Mrs. Margaret Ewing: To ask the Secretary of State for Employment if he will provide details of the number of women in part-time employment; and what is the average level of wages.

Mr. Jackson: There were 5,146,000 women in part-time employment in Great Britain in December 1990. The 1990 new earnings survey estimated that the average gross hourly part-time earnings of women were £3·95.

Mrs. Ewing: The Under-Secretary will recall that answers given to the House on 15 March showed that almost 250,000 women in Scotland were in part-time employment, which meant that their earnings were under the European threshold of decency, and that almost 8,000 of them were earning less than £2 per hour. What steps will the Government take to ensure that companies are prosecuted if they are found to be illegally underpaying women in part-time employment? Only two companies have been prosecuted in the past decade.

Mr. Jackson: If anyone is in breach of the law, he should be pursued and prosecuted. I shall happily look


into the point that the hon. Lady made. I do not know whether the Scottish National party supports a minimum wage, but she must understand that its consequences would be certainly to destroy jobs and to withdraw jobs that would otherwise be available to women.

Training Credits

Mr. Andrew Mitchell: To ask the Secretary of State for Employment if he will make a statement on the progress of the training credits pilots.

Mr. Howard: All 11 pilot schemes for training credits commenced on time on 1 April. Young school leavers in pilot areas are now receiving training credits and starting to use them to obtain approved training of their choice.

Mr. Mitchell: Does my right hon. and learned Friend accept that training credits are already popular with young people because they extend choice and opportunity in the type of training which young people undertake? Does he agree that training credits are a great deal more popular than the Labour party's out-of-date and outmoded policies which rely on compulsion for their implementation?

Mr. Howard: My hon. Friend is entirely right. The right way forward is to put buying power directly into the hands of these young people. Our pilot schemes, all of which commenced on time, are proving the success of that approach.

Oral Answers to Questions — PRIME MINISTER

Engagements

Ql. Mr. McAllion: To ask the Prime Minister if he will list his official engagements for Tuesday 7 May.

The Prime Minister (Mr. John Major): This morning I had meetings with ministerial colleagues and others. Immediately after Questions I shall depart the House to attend a guard of honour for the Prime Minister of Spain. I shall have further meetings later today.

Mr. McAllion: In the past week we have heard some Scottish Tories describe Scottish devolution as an immovable force which their party ignores at its risk. Other Scottish Tories have described it as a fantasy and a dead duck and yet others have described it as a London-based plot hatched by the chairman of the Conservative party to win cheap votes in Scotland. With which of those views does the Prime Minister agree—or is this yet another important issue on which he does not know his own mind?

The Prime Minister: Scotland is part of the United Kingdom and will remain fully so.

Mr. Quentin Davies: Does my right hon. Friend agree that during the past 12 years this country has gained tremendous advantages through substantial reductions in income tax levels? Does he further agree that to increase income tax rates again, even for those on moderate levels of earnings, such as classroom teachers in London, would be a retrograde step and a major blow to the aspirations of millions of people and to economic output?

The Prime Minister: I certainly would agree with my hon. Friend about that. It applies also to national insurance contributions, because what matters is the net disposable income that people have left in their pockets to spend. People will have noticed the Opposition's plans in that regard.

Mr. Kinnock: Will the Prime Minister take this opportunity publicly to oppose a two-tier system in hospitals, such as Watford general hospital, where the patients of non budget-holding general practitioners must wait longer and take second place, regardless of their clinical need?

The Prime Minister: The right hon. Gentleman is wrong. Operations are done on the basis of clinical need. There will be no reductions in existing operations in Watford. Instead, as a result of our reforms, some people will get operations faster than otherwise they would have done. I should have thought that the right hon. Gentleman would welcome that.

Mr. Kinnock: The Prime Minister has just confirmed the existence of a two-tier service. Does he realise that a two-tier system such as he supports is, as the British Medical Association says, "unethical"? Does he recognise that even in its existence it is a violation of the basic principle of the national health service that treatment must be determined according to clinical need, not contracts or commercial decisions? Is not it obvious from what he says and allows that although we believe in a national health service on the basis of need, the Prime Minister believes in one according to deals?

The Prime Minister: None of that remotely follows. Clearly, the right hon. Gentleman did not listen to my first answer. Operations are done on the basis of clinical need. I shall repeat that in case he did not fully hear it first time: operations are done on the basis of clinical need. What we are seeking and attaining are a more efficient system and more efficient use of the large resources in the NHS. The right hon. Gentleman's plans would take money away from the NHS as a result of many of his spiteful proposals. He has made it clear that he will provide no extra funding. We need no lectures on health care from him.

Mr. Kinnock: The Prime Minister not only misrepresents me, he misrepresents what is going on—[Interruption.]

Mr. Speaker: Order.

Mr. Kinnock: The Prime Minister misrepresents what is going on now. Will he take this opportunity to say that there are no cases that he will allow in which the patients of non budget-holding GPs will be allowed to take second place to the patients of budget-holding GPs who have made contractual arrangements with hospitals to gain preference for their patients?

The Prime Minister: The right hon. Gentleman should read what I have said twice already: that operations are done on the basis of clinical need.

Mr. Alexander: Does my right hon. Friend recollect his past criticism of the unsatisfactory nature of the laws on Sunday trading? In the light of recent events, does he agree that it might now be appropriate to bring our laws in England and Wales into line with those of Scotland, where


the commitment to the Sabbath and keeping Sunday special goes hand in hand with sensible Sunday trading laws?

The Prime Minister: As my hon. Friend will know, a number of cases are being considered by the courts. Some may go to appeal. However, my right hon. Friend the Minister of State, Home Office is consulting interested parties to see whether a consensus can be found on Sunday trading law that would be acceptable both to them and to the House, which has repeatedly expressed a view on the matter. I believe that that is the right way ahead on a matter of conscience such as this. Experience in Scotland suggests that a suitable consensus is possible. I hope that we can find one south of the border.

Ms. Ruddock: To ask the Prime Minister if he will list his official engagements for Tuesday 7 May.

The Prime Minister: I refer the hon. Lady to the reply that I gave some moments ago.

Ms. Ruddock: Does the Prime Minister know that last year in Lewisham there were only 320 employment training places when there were 10,000 unemployed people? Can he tell me, therefore, why today, when unemployment has increased by a third, to over 14,000, the number of employment training places is to be cut by a third? What faith does he expect the British people to put in his commitment to a fairer society?

The Prime Minister: As the hon. Lady will know, the United Kingdom is the only country in Europe to guarantee a training place to everyone under the age of 18 who is not already in full-time education or employment. Spending on training is £2·7 billion this year. That is two and a half times more than was spent by the previous Labour Government.

Mr. Speller: To ask the Prime Minister if he will list his official engagements for Tuesday 7 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Speller: Will my right hon. Friend assure me that he will fight for the interests of the small family farm in Britain at the common agricultural policy discussions that are to come and also by providing assistance for such items as expertise in marketing and help for farmers' incomes, which have fallen to an unacceptable level?

The Prime Minister: I can certainly give my hon. Friend the assurance that he seeks. We will defend the interests of all farmers, including small family farmers, in the forthcoming Community discussions. The House knows that, as currently framed, the Commission's plans for CAP reform would discriminate against United Kingdom farmers, largely because our average farm size is greater than that in other member states. We have given considerable help to small farmers recently, in particular by increasing milk quotas and by means of the hill livestock compensatory allowance. We shall continue to help.

Mr. Hain: To ask the Prime Minister if he will list his official engagements for Tuesday 7 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Hain: Will the Prime Minister take this opportunity to repudiate the views of the Conservative candidate in the Monmouth by-election who yesterday advocated the opting out of not just the Royal Gwent hospital but the Nevill Hall hospital as well?

The Prime Minister: Opting out—that is to say, putting control in the hands of local people within the national health service—is the right way to produce better management and local choice. I note that the hon. Gentleman does not favour local choice, just as his hon. Friend the Member for Blackburn (Mr. Straw) made clear in terms of education yesterday.

Mr. Wilshire: To ask the Prime Minister if he will list his official engagements for Tuesday 7 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Wilshire: Given the Government's desire to extend choice in education further, and given the public's desire to see the highest possible standards of education everywhere, will my right hon. Friend find time today to look for ways to extend further choice in education?

The Prime Minister: We are very pleased to see extended choice in education. The new grant-maintained schools, city technology colleges and open enrolment have provided considerable extra choice. I hope that parents will take advantage of it. It is clear that the Opposition do not like choice. Grant-maintained schools, CTCs, the assisted places scheme, charitable status for private schools and the existing A-levels would all go and, with the Opposition's tax plans, most of the teachers would go as well.

Mr. Campbell-Savours: To ask the Prime Minister if he will list his official engagements for Tuesday 7 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Campbell-Savours: Having clearly misled Parliament last week——

Mr. Speaker: Order. No hon. Member misleads Parliament. The hon. Member knows that and he must rephrase his question.

Mr. Campbell-Savours: Having misrepresented to Parliament last week the attitude of the British Medical Association and Britain's doctors as to GP contracts, why did the Prime Minister seek to cover up his mistakes by doctoring Hansard? Is that not true and does not the Prime Minister owe someone an apology?

The Prime Minister: The hon. Gentleman is wrong, and Mr. Speaker will make a statement about that matter at 3.30 pm. In advance of that statement, let me say this to the hon. Gentleman. Like every hon. Member, he knows that it is normal practice, when a Minister uses a quote, for the precise words and their source to be provided by Hansard. In this case, the name of the correct source was put into the record, but I am entirely happy for the original words to be reinstated. The magazine from which I quoted was GP Magazine but similar sentiments to those that I quoted, endorsing the reforms, have been expressed in the British Medical Journal, published by the BMA—[Interruption.]

Mr. Speaker: Order. Let us hear the Prime Minister.

The Prime Minister: I quote from a recent editorial in the British Medical Journal, which said:
The reforms may not address all the problems of the NHS, but they do improve our capacity to specify the quality of services and to price improvements.
The point that I was making is entirely justified. If any apology is required, it is from the hon. Member for Copeland (Dr. Cunningham).

Mr. Jacques Arnold: To ask the Prime Minister if he will list his official engagements for Tuesday 7 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Arnold: Did my right hon. Friend have the opportunity, over the weekend, to reflect on the damage that would be done to our representative democracy by a system of proportional representation? This system would deprive people of their solely responsible local representative to satisfy the Liberals, the statisticians and the pundits who enjoy smoke-filled rooms.

The Prime Minister: I am not in favour of either smoke-filled rooms or proportional representation. I share my hon. Friend's view that it leaves minority parties determining Government policy and striking bargains for their support. That is not democracy, it is horse trading, and I will have no part in it.

Mr. Paice: To ask the Prime Minister if he will list his official engagements for Tuesday 7 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Paice: Will my right hon. Friend take time today to reflect on the fact that we, by reducing the top rate of tax to 40 per cent. from 83 per cent., have increased the proportion of total yield of income tax paid by the highest

10 per cent. of taxpayers from 20 to 30 per cent? Is not this because many of the most wealthy people are now staying in this country and bringing their money back, so that we get 40 per cent. of something, whereas the Opposition would get 59 per cent. of nothing?

The Prime Minister: My hon. Friend is entirely right about that. The evidence as to the amount of tax collected with lower rates is clear for all to see. It is equally clear that, under the Labour party's proposals, 14 out of 15 taxpayers would not be better off, as the right hon. Member for Islwyn (Mr. Kinnock) said a year ago. The figure is now one in eight. When the shadow Chancellor gets at the figures they change daily, and when we have finished costing Labour's programme they will change again.

Mr. Simon Hughes: The Prime Minister will be aware that, in relation to his policy on local government finance, only after huge public protest and widespread cuts in services did he decide that he had better review the policy inherited from his predecessor and then to ditch it. Does he agree that his policy on the opting out of hospitals was equally widely opposed and that it is now clear that it, too, will result in widespread cuts in services? For the sake of consistency of principle, will the Prime Minister carry out a wholesale review and then ditch the policy?

The Prime Minister: No. I do not share the hon. Gentleman's views, and I do not believe that his analysis is remotely correct. [Interruption.] The hon. Gentleman must wait and see how it turns out. He will find that he is wrong. For many years we have had to ensure that the national health service uses its resources to the most efficient extent. At last the present Government have had the courage to introduce a system that will ensure that the money is used to best effect for patients. I believe that, for the national health service, that is the right way to proceed and the one which will produce the maximum amount of good patient care. That is what we propose to do.

Official Report

Mr. Speaker: I have considered the complaint made on Friday last by the hon. Member for Copeland (Dr. Cunningham) that the Official Report incorrectly reported part of an answer by the Prime Minister given by him on the previous day. The Prime Minister is reported, when referring to the British Medical Association, as having quoted from the GP Magazine. I have checked the transcript, which shows that what the Prime Minister said was:
and, only last year, it opposed the GP contracts, yet, in its own magazine, it now says … 
It is the normal practice for a Minister's staff to check Hansard, and during this process a sub-editor was given by a member of the Prime Minister's staff the name of the magazine quoted by the Prime Minister. The sub-editor thought that this was the British Medical Association's own magazine and accepted the suggested change. By including the name of the magazine, however, the Official Report inadvertently changed the sense of the Prime Minister's reply. The Editor of Hansard has expressed to me his regret that this should have happened, and a correction will be printed in today's Official Report.

Dr. John Cunningham: I am grateful for your statement, Mr. Speaker. Of course we accept in good faith the explanation given by the Editor of Hansard. I am quite sure that everybody is clear that no blame attaches to the Editor or his staff for what occurred. However, the fact remains that, although the Prime Minister's staff do not read the court circular, and apparently do not read the British Medical Journal—[HON. MEMBERS: "Cheap."] It is certainly not as cheap as fiddling the record in Hansard. [Interruption.]

Mr. Speaker: Order. It would be helpful to the whole House, in terms of lowering the temperature, if the hon. Gentleman were to rephrase his last comment.

Dr. Cunningham: What emerges from your inquiry, Mr. Speaker, is that a member of the Prime Minister's staff persuaded a Hansard sub-editor to change the record. [Interruption.] That is what happened. The sub-editor was persuaded to change the record in a way that was inaccurate in that it changed the sense of what the Prime Minister had said. Would it not have been better if a correction had been issued from No. 10 Downing street and apologies offered both to the House and to the British Medical Association?

Several Hon. Members: rose ——

Mr. Speaker: Order. I do not think that anything further arises on that. [Interruption.] Order. I have made my statement and cannot say more than that.

Mr. Harry Ewing: On a point of order, Mr. Speaker.

Mr. Speaker: As the hon. Member is always so supportive of the Chair, I will take a helpful comment from him.

Mr. Ewing: I am grateful to you, Mr. Speaker, for pointing out that I am always helpful to the Chair. It is precisely in that vein that I want to put my point of order. We are not dealing here with a trivial matter, and the last

thing that I want to see is the Editor of Hansard, to whom no blame attaches, or even a member of the Prime Minister's staff, being incriminated. I want to know whether this was discussed with the Prime Minister and whether the change was made on his authority.

Bangladesh (Cyclone Disaster)

Mr. Peter Shore: I beg to move the Adjournment of the House, under Standing Order No. 20, for the purpose of discussing a specific and important matter that should have urgent consideration, namely, "the Bangladesh cyclone disaster." [Interruption.]

Mr. Speaker: Order. It is very important that I hear this application.

Mr. Shore: The whole House was appalled by the news last week that 50,000 men, women and children had perished in the cyclone that swept over the coastal areas and the low-lying islands of the bay of Bengal. Alas, that early estimate of the dead has already been proved to be wrong. More than 125,000 casualties are now reported and there are serious estimates that the total could rise to over 200,000 before the count is over. But even that is not the end of it. Villages throughout the coastal areas are still cut off, most of them without food or drinking water, and the first reports of cholera are coming in—[Interruption.]

Mr. Bob Cryer: On a point of order, Mr. Speaker.

Mr. Speaker: I do not need a point of order. I am listening to the application that is being made to me.[Interruption.] Order. It is very unseemly to have these comments. I ask the House please to settle down and let me hear this application.

Mr. Shore: The first reports of cholera are now coming in, and a further still more awful disaster is in the making. Clearly this is a specific and important matter which needs the most urgent consideration. In the very short term there is a great need for food and medicines and, just as important, the means of delivering them. What appear to be most required are helicopters and inflatable power boats.
The Government could tell the House very little last Thursday. I do not blame them for that; telephone contact with Bangladesh is largely dependent upon satellite communications, and the principal facility in the Chittagong area was damaged by the cyclone and is still out of action. Nevertheless, we have a much clearer picture now than we had last Thursday and it should be possible, in a debate, for the Government to give an informed account of the actions they have taken so far, what is now in train, and what further assistance they propose to give.
This is also the time to consider what this country and other donors can do in the period ahead to assist the Government of Bangladesh to carry through an enhanced programme for building cyclone shelters and strengthening coastal defences against, certainly, future cyclone attacks.
Bangladesh is one of the poorest countries in the world. Apart from loss of human lives, present estimates of the cost of this disaster in terms of cattle, crops and infrastructure are well over $1,000 million. Bangladesh is


a member of the Commonwealth. Our ties with that country and its people over the past three decades have been strengthened by the substantial number of people of Bangladeshi origin who have settled here and are now among our fellow citizens.
These are strong reasons for an emergency debate, and I hope, Mr. Speaker, that you will grant one.

Mr. Speaker: The right hon. Gentleman asks leave to move the Adjournment of the House, under Standing Order No. 20, for the purpose of discussing a specific and important matter that he believes should have urgent consideration, namely, "the Bangladesh cyclone disaster."
As the House knows, I have to announce my decision without giving reasons. I listened with care and deep concern to what the right hon. Gentleman said. As he knows, I have to decide whether this application comes within the Standing Order, and, if so, whether a debate should be given priority over the business already set down for today or for tomorrow.
I listened with care to what the right hon. Gentleman said. I do not in any way underestimate its importance, but I have to say that in this case the matter raised does not meet the criteria of the Standing Order. I cannot therefore submit his application to the House.

Sir Hugh Rossi: On a point of order, Mr. Speaker. I wish to refer back to the statement that you made——

Mr. Speaker: Order. I have already dealt with that.

Mr. Max Madden: On a point of order, Mr. Speaker. I very much regret that you were unable to accept the application of my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore). I regret also the rowdy atmosphere in which initially the application had to be made.
The Prime Minister, the Minister for Overseas Development and the Chief Secretary to the Secretary were all present. We understand the plight of the people of Bangladesh which has touched the hearts and, I am glad to say, the hands of the British people who are giving generously and who are concerned at the fact that our Government are being seen as one of the meanest of the richest nations in the world.

Mr. Speaker: Order. The hon. Gentleman must not make allegations which I cannot answer. He is raising a point of order.

Mr. Madden: If the Minister for Overseas Development, the Prime Minister or the Foreign Secretary were to intimate to you, Mr. Speaker, a wish to make a statement at 7 o'clock this evening, would you facilitate such a statement, bearing in mind the great concern of many Bangladeshis who are British citizens and who are worried about the fate of their relatives and friends?

Several Hon. Members: rose ——

Mr. Speaker: Let me deal with one thing at a time. I in no way underestimate the matter. Like the hon. Member, I also have constituents who have relatives in Bangladesh. We had a long run on it on a private notice question on Thursday. Every hon. Member who is present was called to put a question. I am sure that there will be other

opportunities. I have to take into account all kinds of other criteria in making my decision. The House knows that.

Dr. John Cunningham: Further to that point of order, Mr. Speaker. The Leader of the House is here and is listening to the exchanges. I understand your reasons, Mr. Speaker, for not granting an emergency debate, regrettable though that decision is. Given the scale of the tragedy, surely we can prevail upon the Leader of the House to say that he will find an early opportunity for a debate, or discuss through the usual channels the rearrangement of business so that the House may have an opportunity to debate the tragedy and Britain's contribution towards reparation.

The Lord President of the Council and Leader of the House of Commons (Mr. John MacGregor): Further to that point of order, Mr. Speaker. It may be helpful to the House if I say that clearly we would wish to do that and to keep the House fully informed. Communication is obviously a problem in the area, but I can give the assurance that we wish to keep the House fully informed.

Several Hon. Members: rose——

Mr. Speaker: I do not think that anything further on that can be raised with me. The Leader of the House, on behalf of the Government, has stated that he will bear the matter in mind. What point of order can arise for me out of that?

Points of Order

Mr. Alistair Darling: On a point of order, Mr. Speaker. The Secretary of State for Scotland has been briefing the press all morning about the fact that he intends to cap the expenditure of Lothian regional council, a step that may cost hundreds of jobs and will almost certainly put an end to the concessionary bus pass scheme enjoyed by pensioners.
In the past, Mr. Speaker, you have criticised Ministers who have chosen to make statements outside the House rather than to elected Members. Have you received a request for a statement to be made which at the very least would allow us to ask the Secretary of State why poll tax payers in Westminster get a blanket subsidy of £1,000 a head while in Lothian we get £453 a head? The whole thing seems to have the stench of electioneering. The purpose seems to be to save the skin of the Secretary of State for Scotland, who would otherwise face a very unhappy party conference in Perth tomorrow.

Mr. Speaker: Order. That is not a matter for me. I am sure that what has been said will have been heard.

Sir Hugh Rossi: On a point of order, Mr. Speaker. If I may, I should like to revert to the statement that you made earlier about Hansard. It was quite clear from your statement that the name of a book or a magazine was added to the Hansard report by a member of the Prime Minister's office, who had not referred to the Prime Minister and had assumed that that was the magazine to which the Prime Minister had referred. You also made it clear that the Editor of Hansard admitted that in making that alteration his staff had altered the sense of the answer —

Mr. Speaker: Order. I did not say that.

Sir Hugh Rossi: The hon. Member for Copeland (Dr. Cunningham) accused the Prime Minister of fiddling the report——

Mr. Speaker: Order. I am not sure that this is terribly helpful. I asked the hon. Member for Copeland (Dr. Cunningham) to withdraw his remark, and he did so.

Sir Hugh Rossi: The point is that the hon. Member for Copeland made that statement in the full hearing of the House, which asked him to withdraw. He steadfastly ignored that request. My question to you, Mr. Speaker, is whether it is appropriate that the hon. Gentleman should withdraw, and will you invite him to do so?

Mr. Speaker: I asked the hon. Member for Copeland to rephrase his remark, and I thought that he had done so—[HON. MEMBERS: "No."] I am quite certain that the hon. Gentleman would not wish to accuse anyone, least of all the Prime Minister, of fiddling. If he would like to make that clear, we can get on—[HON. MEMBERS: "Withdraw."] Order. I ask hon. Members to restrain themselves; this is very bad behaviour. I shall repeat what I have just said to the hon. Member for Copeland—[Interruption.] Order. In the exchanges, which were somewhat excited, and amid a great deal of noise, I asked the hon. Member for Copeland to withdraw the charge that the Prime Minister had fiddled Hansard. I thought that he had done so. So that it can be absolutely clear, I ask the hon. Gentleman to do so now.

Dr. Cunningham: Further to that point of order, Mr. Speaker. I did not accuse the Prime Minister of fiddling Hansard—[HON. MEMBERS: "You did."] We must get this absolutely clear. I was making it clear that what had happened was that a member of the Prime Minister's No. 10 staff had secured a change in the record, which changed the sense. Conservative Members started to shout comments at me, including "Cheap", to which I replied, "Not half as cheap as fiddling the record." That is what I said, and I stand by that statement.

Several Hon. Members: rose——

Mr. Speaker: Order. I think that we had better leave the matter there.

Mr. Bruce Grocott: Further to that point of order, Mr. Speaker. I hope that this will be a helpful point of order. To avoid the problem occurring again, and as we already have an electronic Hansard—as it is called these days—should not a simple play-back facility be installed in the Hansard office? If a member of the Prime Minister's staff or anyone else then said to the Hansard staff, "We did not mean to say what we actually said"—the right hon. Gentleman is rapidly becoming the Dan Quayle of British politics—would not the simple answer be, as in the case of a disputed penalty, to have an action replay to decide who is right?

Mr. Dennis Skinner: rose——

Mr. Speaker: No.

Mr. Skinner: You need a linesman to help you, Mr. Speaker.

Mr. Speaker: Order. I do not need that sort of help.

Several Hon. Members: rose ——

Mr. Speaker: Order. I am on my feet. I am perfectly able to deal with these matters.
It has been consistently ruled by my predecessors that tape recordings are not a check on the Official Report. The Official Report is a full report which,
though not strictly verbatim, is substantially the verbatim report, with repetitions and redundancies omitted and with obvious mistakes corrected, but which on the other hand leaves out nothing that adds to the meaning of the speech or illustrates the argument.
Reference to that will be found in "Erskine May" on page 211.
The change made on Thursday does not fall within the category of acceptable correction. On the other hand, if Hansard was not able to correct our grammar and omit our verbal mistakes, it would, on many occasions, make pretty incomprehensible reading.

Mr.Geoffrey Dickens: Would you, Mr. Speaker, agree with me—[HON. MEMBERS: "NO."]

Mr. Speaker: Not on a point of order that I have not heard.

Mr. Dickens: On a point of order, Mr. Speaker. Hansard has a difficult job. There cannot be an hon. Member in the House who has not had his or her speech tidied up because it was rather ambiguous. That is why we are all sent notes after our speeches and sometimes after our questions. In doing its work, Hansard often has to interpret ambiguous statements so as to make sensible reading for those who follow us. By all this stupidity this afternoon, are we not placing Hansard itself in a stupid position?

Mr. Speaker: The hon. Gentleman has stated in rather more detailed language the point that I was seeking to make.

Mr. Dave Nellist: On a point of order, Mr. Speaker. Further to your decision on the application made by my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) for an emergency debate on the situation in Bangladesh, I realise that it is not acceptable to challenge the reasons behind your decision that the Finance Bill, today and tomorrow, must take precedence over such a debate, but may I say, in the presence of the Leader of the House, that, were reports in this morning's tabloid press to prove accurate and the Leader of the House does intend to announce the early rise of the House on 19 July, two weeks earlier than usual, many people would not understand how your office could be given the impression that Government business was of such urgency that that important debate could not be arranged?

Mr. Speaker: I have not heard that happy piece of news, but the hon. Gentleman will have heard what the Leader of the House said about the matter.

Mr. Gavin Strang: On a point of order, Mr. Speaker, which arises from the Order Paper rather than from the Official Report. I think, Mr. Speaker, that you accept some responsibility for the Order Paper.
Question 260, tabled in the name of the hon. Member for Tayside, North (Mr. Walker), who clearly does not represent a Lothian constituency, facilitates an announcement by the Secretary of State which will amount to a savage attack on services provided by Lothian regional


council. May we be protected from such behaviour? Is not the Secretary of State prepared to come here and make a statement?

Mr. Speaker: I am responsible for the Order Paper. I look carefully at questions, and provided that they are in order they can be tabled, and that question was perfectly in order.

Mr. Roger King: Further to your statement, Mr. Speaker, and the response of the hon. Member for Copeland (Dr. Cunningham), it is clear that he used the word "fiddling" and, sitting where we were on the Conservative Benches, it was abundantly evident that the hon. Gentleman's remarks were pointed directly at my right hon. Friend the Prime Minister; there can be no doubt about that. Taken out of context and read simply in Hansard, his words can mean all kinds of things, but at the time they were directed directly at my right hon. Friend the Prime Minister. Is the hon. Gentleman going to withdraw them?

Mr. Speaker: We have all heard what the hon. Member for Copeland (Dr. Cunningham) subsequently said. The point was drawn to my attention by the hon. Member for Hornsey and Wood Green (Sir H. Rossi). I have dealt with that.

Mr. Simon Hughes: On a point of order, Mr. Speaker. Although you have ruled on the application by the right hon. Member for Bethnal Green and Stepney (Mr. Shore), as the Leader of the House is present in the Chamber, may I point out that, although we shall be considering the Finance Bill today and tomorrow, the Bill to be considered on Thursday is of lesser importance. I wonder whether the Leader of the House can find a way of facilitating a debate on Bangladesh on Thursday if an application for one, with the consent of all parties, is made to you tomorrow, Mr. Speaker. Would that be in order, and would you accept such an application?

Mr. Speaker: The Opposition and the minority parties have their Opposition days, although there may not be one

immediately available for the hon. Member's party. Nevertheless, that question is clearly one for the usual channels to resolve, and right hon. and hon. Members heard what the Leader of the House had to say on that issue.

Mr. Jeremy Corbyn: rose ——

Mr. Speaker: I will take one final point of order, if it is on the same subject.

Mr. Corbyn: Yes, Mr. Speaker, it is. I do not want to challenge your ruling on the application made by my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore), but I want to convey to Ministers—through you, Mr. Speaker—the sense of urgency that must be brought to bear on the situation in Bangladesh. Hundreds of thousands of lives are at risk. Many of them could be saved, and a cholera epidemic in Bangladesh could be prevented, if transport equipment, particularly military helicopters, were sent to the affected region from the base at Diego Garcia and from bases in the Gulf. Urgency is the key. If the Minister concerned could be persuaded to make a statement today, or, better still, if helicopters could get to the region quickly, many lives could be saved.

NORTHERN IRELAND COMMITTEE

Ordered,
That the Proposal for a draft Fair Employment (Amendment) (Northern Ireland) Order 1991 published on 28th February 1991, being a Matter relating exclusively to Northern Ireland, be referred to the Northern Ireland Committee for its consideration.—[Mr. Wood.]

Statutory Instruments, &c.

Mr. Speaker: With the leave of the House, I will put together the Questions on the two motions relating to statutory instruments.

Ordered,
That the Financial Services Act 1986 (Extension of Scope of Act) Order 1991 (S.I., 1991, No. 1104) be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Financial Services Act 1986 (Delegation) (No. 2) Order 1991 be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Wood.]

Sunday Trading (Video Shops) Bill

Mr. John Marshall: I beg to move, That leave be given to bring in a Bill to exempt video shops from the provisions of the Shops Act 1950.
Some months ago, my right hon. Friend the Prime Minister described the Shops Act 1950 as bizarre. The ban on the sale or renting of videos is a particular example of that much more general complaint. The 1950 Act was passed in a quite different era. The 1940s were a time of rationing and not of plenty, and the Shops Act 1950 was passed at a time when cinemas did not open on Sunday, professional sport never took place on Sunday, and most people did not have television—and those who did had the choice of only one channel, which broadcast for only four and a half hours.
The 1950 Act was passed at a time when no one had heard of videos, garden centres, or do-it-yourself superstores. Today, the situation has changed. In 1972, the House passed the Sunday Theatre Bill and Sunday Cinema Bill. Today, cinemas and provincial theatres can, and do, open on Sunday—and only last Sunday the Haymarket theatre opened for a performance of "Talking Heads", which repeated an earlier performance and raised money for charity.
Videos are surely part of the same entertainment industry as the theatre and cinema. Whereas television used to be broadcast for only four and a half hours on Sunday, today one can view 20 hours of BBC1 or BBC2; 24 hours of ITV; or 20 hours of Channel 4. That represents 84 hours of viewing choice on Sunday, compared with four and a half hours in 1950. Furthermore, if one is a subscriber to Sky Television, one can watch 24 hours of movies on either of two of its film channels.
Current law says that it is perfectly moral to see a film at a cinema, but wrong to watch the same film on a video at home. The law says that it is right and moral to watch television all day, but wrong to hire a video to view after church.
A further anomaly is the changing attitude to sport. As I said, in 1950 there was no professional sport on Sunday, but today the most popular games of cricket are those played in the Sunday league. It is not unknown either for the British climate to cause the Wimbledon finals to be played on Sunday.

Mr. Dennis Skinner: Members of Parliament do not work on Sunday.

Mr. Marshall: Some of us work a seven-day week, even if that is not true of the hon. Member for Bolsover (Mr. Skinner).
The law says that it is perfectly all right to watch golf, cricket, football or tennis on Sunday, but wrong to view a sporting video. Apparently, it is perfectly moral to watch Arsenal playing at Highbury on Sunday, but wrong to watch a video of the 1966 World Cup final. What giants they were—Peters, Hurst, Charlton, Stiles and Banks—yet one cannot enjoy watching them on Sunday in one's own home. That is nonsense.
One of the ironies is that the video industry is more closely regulated than the cinema or the theatre. Under the Video Recordings Act 1984 much stronger standards apply to the video industry than apply to the cinema to take account of the fact that videos are seen in the home,

not outside. Another irony is that video shops are owned by small shopkeepers who operate legally selling newspapers, so why should not they also be allowed to hire out a video? Why should not small shopkeepers be free to serve the needs of their customers? Why should not individuals in that branch of the entertainment industry be treated in the same way as the rest of the entertainment industry?
The importance of videos can be seen by the fact that more than 25,000 people are employed in the video software industry. It is the largest visual entertainment media employer, employing 50 per cent. more people than ITV and 25 times as many as British Sky Broadcasting. Sunday trade is especially important to the video industry because 28 per cent. of video rentals take place on a Sunday. If obstacles are placed in the way of this industry, the viability of some shops will be affected and some individuals will have to close shop.
There are currently 110 prosecutions pending against the video industry. In Newham, Hartlepool, Kingstonupon-Hull and Scunthorpe the social problems are so light that the local authorities are prosecuting the video industry for renting out videos. What blessed places they are that they have nothing better on which to concentrate local authority time.
The judgment of the Court of Appeal in the B and Q and Wickes cases has created uncertainty about the future of the Sunday trading law and its enforcement. It will now be more difficult to resort to injunctions to enforce the law, but it will be possible to prosecute and the maximum fine for a prosecution is £1,000. To a large firm, £1,000 is no deterrent, but to a small video shop which rents out a few videos it is an important penalty which acts as a real deterrent.
People, not legislation, make Sunday a special day. The church will not be graced by having conscripts in the pew and those churches which thrive do so because they offer a positive message. Would Charles Wesley have needed the protection of the Shops Act 1950 to get people to hear a good Wesleyan sermon? We all wish Archbishop Carey well in the future. This year we have seen a new Archbishop of Canterbury inducted and we shall shortly see a new Chief Rabbi. The new Chief Rabbi has a congregation that is not protected by trading laws, but it honours the Sabbath rather better than the followers of Archbishop Carey honour the Sabbath.
A church that relies on the protection of the law to encourage people to come to its services will do less well than the Jewish faith does, not by relying on the protection of the law but by having a positive message for those who come to shul.
A law that is frequently broken by the 60,000 shops that open every Sunday and by the 2 million people who work every Sunday, and a law that is enforced intermittently and is riddled with inconsistencies brings the rule of law into disrepute. I invite the House to face reality and to support the Bill. The need for the reform of Sunday trading is widely accepted by the Consumers Association, by the majority of retailers and by the majority of people in this country, apart from my hon. Friend the Member for Southend, East (Mr. Taylor). The nonsense has been confirmed by the recent Court of Appeal judgment.
One local authority has said that the law is now unenforceable. The Keep Sunday Special campaign has said that it believes in the need for compromise. The Bill offers a compromise. It deals with small traders and


suggests that video shops should be put on a par with the rest of the entertainment industry. I ask the House to allow the Bill to be introduced so that the House can demonstrate that it believes in the need for compromise.

Mr. Teddy Taylor: I have a high regard for my hon. Friend the Member for Hendon, South (Mr. Marshall) and for all his good works. At the end of his speech, he said that we should face reality. I appeal to the House to face reality and to realise that it is nonsense for ourselves and for our democracy to try to pretend that we still have the power to do anything in the meantime about Sunday trading. My hon. Friend the Member for Hendon, South said that, because of the recent court judgment, there was some difficulty in moving an injunction. He should consult a lawyer because the lawyers in Southend will tell him that it is not only difficult, but impossible to move an injunction at present. The law has effectively been frozen because of the decision in the B and Q case which was based solely on a decision whether our Sunday trading laws were inconsistent with the treaty of Rome.
We know that a higher court will make its judgment next week. We know that the matter will then go to the European Court. Although we may pass laws on Sunday trading and on whether video shops, greengrocers' shops or any other shop should stay open or be closed on a Sunday, we shall be told what to do by the European Court in two years' time.
It may be nonsense to try to hold up the House in the good work that it wants to do, but I appeal to my hon. Friend the Member for Hendon, South and to the House generally to stop pretending that we still have power that we do not have. It does not make the slightest difference whether the Bill is passed or rejected.
My hon. Friend the Member for Hendon, South kindly mentioned Southend. I drove round on Sunday and saw that, rightly or wrongly, all the video shops were open. The law is in a state of total confusion. It has been suspended because of an action that our laws are inconsistent with the treaty of Rome. I do not know whether our laws are inconsistent with the treaty. The people who will tell us are the judges in the European Court who are appointed to do so. Once they make the decision, whether we pass 1,000 laws on Sunday trading or whether the trading standards inspectors rush round, those inspectors will have no power.
I do not know what the court will do. My hon. Friend does not know what the court will do and I am sure that the hon. Member for Bolsover (Mr. Skinner), who follows these issues closely, does not know what the court will do. The plain fact is that, irrespective of what we decide today, we shall be told what to do in two years' time. Even if the Prime Minister, the Leader of the Opposition and the leader of the Liberal Democrats decide differently, that is that.
In the House of Commons, we spend a great deal of time asking for inquiries into matters and asking the Government to give more priority to certain matters when the power has gone away. A point of order was raised today about a rumour that the House will rise two weeks early simply because we can no longer do the things that we used to do. The time has come for the House of Commons to face up to the threat to our democracy, to

consider the implications and to decide what we should do, instead of going on a wild goose chase and saying that we want to change a law that has been suspended because of an action relating to the European Court.
In no sense of hostility to my hon. Friend the Member for Hendon, South—and he is one of the most conscientious, hard-working, sincere and undoubtedly good Members of the House—I must say that I hope that he will not be taken away from reality by what he says. The reality is that our law has been suspended. The reality is that, irrespective of the views of Parliament, we shall be told what to do in two years' time. To try to pretend that matters are different is to run away from reality and from our respect for democracy. I hope that my hon. Friend will withdraw the Bill. If he does not, I hope that the House will reject it, not because we reject his ideas, but because we have to say, sadly, that his opinions are utterly irrelevant today. The European Court and not the democratic House of Commons will decide and will tell us what to do.

Question put, pursuant to Standing Order No. 19 (Motions for leave to bring in Bills and nomination of Select Committees at commencement of public business):—

The House divided: Ayes 38, Noes 71.

Division No. 135]
[4.08 pm


AYES


Alexander, Richard
Mitchell, Andrew (Gedling)


Arbuthnot, James
Mitchell, Austin (G't Grimsby)


Arnold, Jacques (Gravesham)
Nelson, Anthony


Ashby, David
Neubert, Sir Michael


Atkinson, David
Oppenheim, Phillip


Buck, Sir Antony
Price, Sir David


Campbell, Menzies (Fife NE)
Riddick, Graham


Coombs, Anthony (Wyre F'rest)
Roe, Mrs Marion


Coombs, Simon (Swindon)
Rost, Peter


Dover, Den
Smith, Tim (Beaconsfield)


Evans, David (Welwyn Hatf'd)
Squire, Robin


Field, Barry (Isle of Wight)
Stewart, Rt Hon Ian (Herts N)


Greenway, Harry (Ealing N)
Thurnham, Peter


Hayes, Jerry
Walters, Sir Dennis


Hughes, Robert G. (Harrow W)
Watts, John


Hunt, Sir John (Ravensbourne)
Wheeler, Sir John


Janman, Tim
Woodcock, Dr. Mike


Jones, Robert B (Herts W)



Jopling, Rt Hon Michael
Tellers for the Ayes:


Marshall, John (Hendon S)
Mrs. Teresa Gorman and Mr. Stephen Day.


Meyer, Sir Anthony





NOES


Abbott, Ms Diane
Godman, Dr Norman A.


Allen, Graham
Gordon, Mildred


Armstrong, Hilary
Gregory, Conal


Banks, Tony (Newham NW)
Griffiths, Win (Bridgend)


Barnes, Harry (Derbyshire NE)
Hardy, Peter


Beith, A. J.
Harris, David


Bellotti, David
Haynes, Frank


Benn, Rt Hon Tony
Hicks, Mrs Maureen (Wolv' NE)


Bennett, A. F. (D'nt'n &amp; R'dish)
Hogg, N. (C'nauld &amp; Kilsyth)


Benton, Joseph
Home Robertson, John


Campbell-Savours, D. N.
Jessel, Toby


Cartwright, John
Jones, Martyn (Clwyd S W)


Cohen, Harry
Kellett-Bowman, Dame Elaine


Corbyn, Jeremy
Knapman, Roger


Crowther, Stan
Latham, Michael


Cryer, Bob
Lewis, Terry


Cunliffe, Lawrence
McAvoy, Thomas


Dalyell, Tam
McFall, John


Dixon, Don
McKay, Allen (Barnsley West)


Duffy, A. E. P.
Madden, Max


Eastham, Ken
Mahon, Mrs Alice


Evans, John (St Helens N)
Malins, Humfrey


Faulds, Andrew
Michie, Bill (Sheffield Heeley)


Fearn, Ronald
Moate, Roger


Foster, Derek
Morgan, Rhodri


Glyn, Dr Sir Alan
Morris, Rt Hon A. (W'shawe)






Morris, M (N'hampton S)
Smith, Andrew (Oxford E)


Patchett, Terry
Stanbrook, Ivor


Pawsey, James
Steel, Rt Hon Sir David


Pendry, Tom
Strang, Gavin


Powell, Ray (Ogmore)
Warden, Gareth (Gower)


Primarolo, Dawn
Welsh, Michael (Doncaster N)


Quin, Ms Joyce
Wilson, Brian


Redmond, Martin



Sedgemore, Brian
Tellers for the Noes:


Sheerman, Barry
Mr. Teddy Taylor and Mr. Bowen Wells.


Sheldon, Rt Hon Robert



Skinner, Dennis

Question accordingly negatived.

Orders of the Day — Consolidated Fund (No. 3) Bill

Order for Second Reading read.

Question, That the Bill be now read a Second time, put forthwith pursuant to Standing Order No. 54 (Consolidated Fund Bills), and agreed to.

Bill accordingly read a Second time.

Question, That the Bill be now read the Third time, put and agreed to.

Bill accordingly read the Third time, and passed.

Orders of the Day — Finance Bill

(Clauses 14, 21, 22, 23, 24, 31 and 77 and Schedule 14)

Considered in Committee.

[MR. HAROLD WALKER in the Chair]

Ordered,
That the order in which proceedings in Committee of the whole House on the Finance Bill are to be taken shall be Clause 22, Clause 77, Schedule 14, Clause 23, Clause 24, Clause 31, Clause 21 and Clause 14—[Mr. Mellor.]

Clause 22

RATE OF CORPORATION TAX FOR 1990

Mrs. Margaret Beckett: I beg to move amendment No. 1, in page 16, line 4, at end add—
'(1A) Where a company whose activities consist
(i) wholly or mainly in the manufacture of finished goods, partly finished goods or materials, and
(ii) of activities falling within such classes, groups or descriptions set out in the Standard Industrial Classification issued by the Central Statistical Office as may be prescribed by way of regulations made under this subsection
so elects in writing within two years of the end of an accounting period which includes the whole or any part of the financial year 1990, subsection (1) above and subsection (2) below of this section shall not apply to that company in relation to that accounting period; and where such an election is made, then, in relation to that company for that accounting period,
(a) the rate at which corporation tax is charged for the financial year 1990 shall be 34·01 per cent. (and not 35 per cent. as provided by section 19 of the Finance Act 1990)
(b) section 24(2)(a)(i) of the Capital Allowances Act 1990 shall have effect as if the percentage specified therein were the aggregate of 25 per cent. multiplied by A and 40 per cent. multiplied by B, where B represents the fraction of the accounting period comprised within the financial year 1990 and A represents the fraction of the accounting period not so comprised (if any), and
(c) the fraction mentioned in section 13(2) of the Taxes Act 1988 for the financial year 1990 shall be taken to be a fraction of which the numerator is one thousand eight hundred and two and the denominator is eighty thousand (and not one fortieth as provided by section 20 of the Finance Act 1990).'.


The amendment proposes to raise the assistance and support that should be given to British business, especially in the context of the proposals in the Finance Bill and of the general state of the economy.
I remind the House of some of the economic indicators: 500,000 jobs have been lost in the past 12 months, and the losses are accelerating; almost 25,000 firms failed last year—an increase of almost 77 per cent.—and it is predicted that about a further 25 per cent. are likely to fail in the coming year; and since last spring, £2 billion has been slashed from investment and there has been a substantial cut—perhaps as high as £7 billion—in manufacturing output since last March.
Against the background of those alarming results for our economy, we contend that the Government should be giving priority to manufacturing industry and manufacturing investment, primarily because the tradable sector is almost overwhelmingly the sector of the economy in which we earn our living in the world, as opposed to merely exchanging goods and services within our boundaries. There are some tradable services, but Britain's trade in manufactures is the essence of the way in which it earns its living.
When the serious balance of payments deficit began to emerge, Conservative Members, especially the former Chancellor—I cannot remember how many Chancellors we have had since—the right hon. Member for Blaby (Mr. Lawson), sought to suggest that the problems were of demand and of the way in which the economy was developing rather than structural problems because of our inadequacy in producing the manufactures that we wish to buy and consume.
Although that explanation enjoyed brief popularity among Ministers, they now accept that we have structural problems and that our inability as an economy to produce all the goods we need is leading to our underlying difficulties. In that context, I want to draw attention to some figures which show the trends in our trade balance.
First, there are the statistics for manufactured export volumes between 1979 and 1990 produced by the United Nations on a comparable basis across most of the developed world. I emphasise that these are results, rather than forecasts, as the Chancellor of the Exchequer has told us how much he prefers results. The results show that, of 14 countries, the United Kingdom comes 13th for the percentage change in manufactured export volumes since 1979. That is a clear sign of how far we are falling behind so many of our competitors.
It is evident from more recent figures for our manufactured trade that the value of our exports between 1979 and now, including the forecast figure for this year, has fallen by minus 8·7 per cent. Since 1979, the value of our trade has fallen by more than 2 per cent.—minus 2·4 per cent. precisely—as a percentage of our gross domestic product—a percentage of the wealth we earn.
The same picture is evident for volumes. Although our exports have risen by 59 per cent. since 1979, our imports have risen almost twice as much—by 108 per cent. World manufactured exports have risen by 87 per cent. Again, that paints a rather alarming picture of how we are doing against the increase in world trade.
Since 1979, our share of world manufactured exports has fallen by 15 per cent., if measured, as is most accurate, at constant prices. That is an alarming picture, which is confirmed by figures for the change in manufacturing trade balance since 1979, again as a percentage of our national

wealth, our GDP. Of the 22 countries of the Organisation for Economic Co-operation and Development for which figures are available, the United Kingdom comes 21st.

Mr. Tim Smith: If we put those figures into a longer historical context and look at our record since the second world war, would we not find that a 59 per cent. increase in export manufactures in the past 12 years was rather a good performance and that our percentage of world trade has stabilised during the past five or six years, which is a remarkable achievement compared with the continual decline of previous decades?

Mrs. Beckett: That would be a remarkable achievement if it were so, but, unfortunately, it is not. I agree that there was a period when our share of world trade reached a plateau and we all began to hope that the position would improve, but that is no longer the case. The overall picture that is emerging is of continuing decline. I accept the hon. Gentleman's point that that has happened not only under this Government, but it has continued to happen under this Government, who have continually told us that they have enjoyed a dramatic success such as was not enjoyed by previous Governments in previous decades. Yet, comparing our performance with that of our competitors, we have done poorly—although, as we must always remind the House, we had the enormous advantage of income from the North sea, which we could have used to invest and improve that very performance. That is the evidence from the trade balance of the difficulties that we are experiencing with our manufactured trade.
I should like to produce more evidence as to the scale of the problems and why it is that the Opposition believe that manufacturing should be given so high a priority. If we look at the position of our EC competitors, there is no doubt that there has been what the Prime Minister likes to call a decline in manufacturing activity in other countries as well as here. Unfortunately, however, there is equally clear evidence to show that the decline that we are experiencing is much worse than that of our competitors.
4.30 pm
The Eurostat data on production expectations show clearly that the United Kingdom has the deepest recession. When it comes to stocks of finished products, the data show that we are more or less level pegging, in bottom position, with Spain and France. Overall, the figures show clearly that we are experiencing a more severe recession than anyone else.
If we consider the OECD countries and whether there is evidence there of a more general decline, we see that there are countries where, just as in this country, output is likely to have been lower in 1990, and that it fell for much of 1990. In other countries, the picture is somewhat mixed. Output began to rise, and fell again. In terms of the severity of the recession, however, what comes through clearly is that only in Canada or Greece is there anything like the scale of recession that there is in the United Kingdom. Even there, the picture is not as gloomy as, unfortunately, it is in this country.
From the rate of growth of manufacturing output in OECD countries between 1979 and 1990, it is clear that, in percentage terms, out of all the 16 OECD countries for which figures are available, the United Kingdom came 14th. My hon. Friend the shadow Secretary of State for Trade and Industry drew the attention of the House to the most recent and alarming figures that we have produced


for average output. We have considered what is likely to happen, using the Government's own forecasts, during the coming year and have looked at what that means in terms of the change in output since 1979 when this Government came to power. On average, they show that output will have risen only by a mere 6 per cent. over that period of 11 years.
If we look at the most recent figures that are available to me—those for February 1991—we see that the picture is even worse than the average figures that we quoted previously. If we take the period from May 1979 to February 1991, the total increase in manufacturing output in that period amounted to a mere 3·5 per cent. These are extremely worrying figures, at a time when we are approaching the single market in 1992. We shall face more severe challenges then than we have experienced for a substantial period.
That is the information which has been made available to the House, and it shows the scale of the difficulties that we face. It brings me to the question of what we are doing about them and what action is being taken. If we look at the only measure that can possibly begin to remedy these problems—the trend of developments with regard to investment—again we see an extremely alarming picture. The figures for business investment and total investment—figures that the Government normally like to give—have taken a nose dive in the most recent months. They fell by a greater amount than we have seen since the great depression of the 1930s. If we compare the figures for the first half of 1990 to the first half of this year, we see that a decline in investment is predicted of perhaps as much as 12 per cent. Again there is no question but that that is very much the overall pattern.
The figures for investment as a proportion of gross domestic product have fallen almost continuously. Perhaps there was a slight recovery towards the middle of the 1980s. However, they are substantially below the figures that this Government inherited in 1979, and they are very much below the pattern of what was spent on investment in this country in previous years under successive Governments.
The figures for manufacturing fixed investment at constant 1985 prices show that investment is expected to come in at a lower level than that which the Government inherited in 1979. If the most recent forecasts from the Confederation of British Industry turn out be correct—we must all hope that they will not the figures for manufacturing fixed investment are likely to go back to the levels that we saw in the 1960s. That is no way to prepare ourselves for the challenges of the single market in 1992.
If we look at what our competitors are doing in manufacturing fixed investments, on the figures per person employed in manufacturing among the OECD 15, we see, on the most recent figures that we have, the United Kingdom coming in 14th. As those were the figures for 1988, when, by the Government's standards, there was something of an investment boom, the position now may be even worse.
Nor is that the case only for investment in manufacturing generally. Our competitors are increasing their investment in research and development, but if we look at the change in Government-funded civil research and development, we come 18th out of the OECD 19 for the period 1985–89, when, we are told, there was a boom in investment. If we look at the figures for Government-funded research and development as a percentage of gross

domestic product, we see that we are 12th out of the OECD 19 and, in terms of per head of population, we are 13th out of the OECD 19.
In summary, manufacturing output is falling; manufacturing investment as a percentage of gross domestic product has fallen since 1979 by 12·7 per cent. at constant prices; manufacturing fixed investment, excluding leased assets by almost 15 per cent.; and that including leased assets by almost 14 per cent. That is an alarming picture when we consider the background to these figures and this summary.
That brings me to the prospects for recovery. The Chancellor said the other day that recovery was around the corner, but I am not sure what corner that is. It must be one that is rather a long way away. According to the Government's figures in the Red Book, the recovery will be consumer-led rather than, as one would hope, investment-led and laying the foundations for a more prosperous economy.
I am not sure how many hon. Members have seen the report in the Financial Times this morning of the most recent survey of expectations from academics, economists, study institutions and others. It shows increasing anxiety about the strength of the recovery, when it begins, and a suggestion that it might be fragile and weak at best. There are worries about the Government's reliance on growth in real incomes and consumer spending rather than in structural improvements to pull us out of recession and into recovery.
Perhaps most interesting of all—given the Government's time scale, which seems to be focusing on the general election—the economists predict that, although there will be a recovery and inflation will begin to fall, by early 1992 inflation will have begun to climb again, interest rates will have stopped falling and the trade gap will have begun to widen. That is an alarming prospect for the country and a difficult one for the Government, who are clearly trying to time the election for that period after the recovery has occurred and before the deterioration that is so widely expected becomes evident.

The Chief Secretary to the Treasury (Mr. David Mellor): So the hon. Lady admits that there will be a recovery.

Mrs. Beckett: We have never denied that there will be a recovery. I am astonished at the Chief Secretary, who is brighter than he is trying to pretend. Of course there will be a recovery. When the economy is absolutely flat on the floor, the situation would be desperate indeed if there were never to be a recovery. The question is when it will occur, to what extent, and—most important of all—whether it can be sustained. We have to ask ourselves whether this country is taking the necessary action to prepare itself for long-term prosperity rather than short-term recovery, which, it is predicted, will be—in the words of the Chancellor about the recession—possibly shallow and short-lived.
I should like, in this context, to draw attention to these words of the president of the CBI:
Investment in training, innovation, research and development, as well as in fixed capital, adds to the nation's productive capacity, enhances its efficiency and speeds up its eventual economic recovery.
The following words fit in very well with the observations of a variety of experts I have been quoting:
If we do not expand this capacity we will not be able to sustain renewed economic growth for very long. Once industry is back working near its full capacity, further


increases in spending could not be met with higher output but would simply result in those familiar problems of rising prices, surging imports and current account deficits, which we experienced in the late 1980s.
Against that background, I am moving this amendment to enable us to raise the issue of investment allowances specifically targeted at manufacturing industry. This is in complete contrast to the underlying philosophy behind the changes that the Government are making through the Budget and the Finance Bill. The reduction in the rate of corporation tax will lead to reduced business costs across the board. No doubt that is welcome to businesses, particularly small and medium-sized businesses, but the benefit is not targeted at any group of companies or any sector of the economy. The welcome, however, is tempered by realisation of the fact that the reduction in business costs is counterbalanced by increases in business costs, such as the one resulting from the change in national insurance contributions. Then there are those matters that are not covered by the Finance Bill, such as changes in the statutory sick pay scheme and the increase in the business rate, which have added substantially to business costs, and which everyone knows are matters of considerable concern to industry and commerce.
Let me refer to what the Opposition see as the real significance of the Government's decision to concentrate on cuts in the rate of corporation tax, rather than to provide the investment allowances for which so much of industry was calling. I know that some groups, such as the Institute of Directors, are always pleading for cuts in tax rates, but the Government must be aware of the widespread view that investment allowances—particularly allowances targeted at manufacturing industry—would have been the right means of helping business. The Government must be aware of the views of the Engineering Employers' Federation, the CBI and the TUC. We all know, of course, that they ignore the TUC.
The really revealing fact is that, even when industry itself asks the Government to do something that would not reduce business costs across the board but give priority to the encouragement of investment—directly in manufacturing, and indirectly in training—the Government are not prepared to agree. The resources available to the Government are bound to be limited. In response to the call for targeted help, particularly for those sectors of industry that are the agents of recovery, the agents of growth, surely the Government ought to take account of that fact, especially when we are in the depths of such a recession, and when we have such a record of difficulties.
The decision not to reintroduce investment allowances, but instead to cut the rate of corporation tax, was not a practical one dictated by the recession, by a wish to promote investment more than anything else—in particular, to promote investment in manufacturing industry. It was an ideological decision—a decision that fits in with the overall attitude, which the Government have adopted for so many years, that, even when industry itself seeks targeted help of this kind, they should stand aloof and say that it has nothing to do with them. The Government's attitude is that they should make changes for the whole of industry, and leave the rest to individual firms. They do not care whether companies use assistance for the purpose of repairing their balance sheets, rather than for investment purposes.
4.45 pm
That, too, is closely related to the speech that the Chancellor made last week—to the Adam Smith Institute, I think—in which he said that the Government intended to continue to pursue exactly the course that they have pursued for the past 11 or 12 years. They intend to stand aloof from industry and say, "Get on with it, and don't expect us to involve ourselves in any way. Don't expect us to make even the most indirect choices about the priorities that you should be pursuing." This is particularly interesting to me, because the decision to follow the path—advocated by the Institute of Directors—of reducing the rate of taxation and increasing taxes on expenditure ties in with the long-term approach that that institute is urging on the Government. It seeks the erosion, and, over five or 10 years, the ultimate abolition, of all taxes on companies, all taxes on capital and, indeed, all taxes on income.
Perhaps some increases in taxes on expenditure are necessary, but what is sought, as a quid pro quo for those changes, is the disappearance of what is loosely described as the welfare state, which is taken for granted by so many people in this country. The Institute of Directors has the courage to do what the Government have never had the courage to do—explicitly to explain that, as a trade-off for cuts in tax rates, leading to substantial reductions in taxes, it would like to see the Government foster increased use of private retirement insurance, private education insurance, private unemployment insurance and private health insurance—with a scheme retained and supported by the state only for the destitute, for whom, clearly, the move towards private insurance schemes as a whole cannot be sustained.
To me, it is very revealing, as well as very frightening, that the Government intend to continue along the ideological path on which they have embarked, which ties in so well with the action that is urged on them by groups such as the Institute of Directors and the No Turning Back group of Conservative Members of Parliament. This measure is a signal, like those provided by the Chancellor, that there is indeed no change in the Government's attitude to industry; no change in the role that they see for themselves; no recognition of the need for any kind of partnership with industry and commerce; no recognition—worse of all, in the face of the alarming figures indicating the real prospects for our economy—that they have a duty to plan, in the national interest, to sustain the long-term competitiveness of our economy. The Opposition have tabled this amendment because they see a very clear ideological and philosophical divide with the Government on the issue. Unfortunately, actions such as those which the Government have taken will not contribute to the long-term prosperity of the country.

Mr. Mellor: Clause 22, to which this amendment relates, is straightforward. I say "straightforward" because the density, when one comes to Finance Bills from other legislation, takes some getting used to. On this occasion, I have the advantage of starting off with something that is reasonably straightforward. I do not need a long glossary to enable me to comprehend the basic language. The other clause that I shall be dealing with tonight, clause 23, has the advantage of being even more straightforward.
It may be appropriate just to recall, before we plunge into the thicket of point and counterpoint, that subsection (1) of clause 22 reduces the corporation tax rate for the


financial year 1990 from 35 per cent. to 34 per cent. and, of course, it is linked to clauses 23 and 24. Clause 23 reduces the corporation tax rate to 33 per cent. for the year 1991 and clause 24 deals with changes to the small companies' rate. The other two subsections of clause 22 deal with the taper mechanism between the level at which the small companies' rate applies and the profit levels before one arrives at the full rate of 34 per cent. It makes certain adjustments to that so that there is no great cliff edge between the small companies' rate and the main rate.
As this is one of the centrepieces of the Budget, it is appropriate that we should start with it today. A major reduction is being proposed, in this and related clauses, in the tax burden on industry. Although obviously it is the duty of Oppositions to carp and cavil—and the hon. Member for Derby, South (Mrs. Beckett) has carped and cavilled—this is a very significant step forward, because, as I shall later demonstrate, it once again gives us the keenest corporation tax rates of any of the world's major economies. That is something of which we can be proud.
As for the lyrical picture that we were painted of what life was apparently like in the 1970s—although I am bound to say that I do not remember it that way and I wonder who, in truth, does—it is worth remembering that in 1979 the main rate of corporation tax was 52 per cent. We are debating a proposal to reduce it to 34 per cent. and we hope that in a subsequent debate the House will approve its reduction to 33 per cent. Back in those balmy days of 1978–79, Labour's last full financial year, the small companies' rate was 42 per cent. Today it is 25 per cent. In those days, 12 years ago, the small companies' rate——

Mr. Robert Sheldon: Will the right hon. and learned Gentleman give way?

Mr. Mellor: I will give way when I have finished giving the figures. I know that the right hon. Gentleman has some responsibility for these matters, so I will present him with the full picture and then happily give way.
The small companies' rate was incurred on profits of £60,000. Our proposal is that in 1991 the small companies' rate shall not apply until profits of £250,000 are attained—over four times as much in cash terms, so a very substantial increase in real terms.
The marginal relief threshold, the taper that applies up to the main level, means that we propose that this year a company shall become liable to pay the full rate of corporation tax only when its profits exceed £1·25 million. That contrasts with the threshold at which full corporation tax was paid under Labour of £100,000. It is an increase of over 1200 per cent. That is a sign of just how dramatic has been the reduction of the tax burden on industry and it is something that we should never forget.

Mr. Sheldon: Is that a fair way to make that comparison? Surely the comparison should be made with the amount that industry paid out in corporation tax. There were allowances and reliefs of a number of kinds, as I am sure the right hon. and learned Gentleman knows, and industry asks only how much it will have to pay. It is not just these headline figures that the right hon. and learned Gentleman is putting out. On that basis, industry is doing very badly at the present time and more assistance needs to be given to it.

Mr. Mellor: It is certainly true that part of the trade-off for the reduction in corporation tax was the removal of some elements of capital allowance, stock allowances and so on. I was proposing to come to that, since it is of the essence in the debate between us. But it is undoubtedly true that the burden of taxation on business has been lightened by the Government and it is the purpose of the Budget to burden industry even less. That is a principal theme of this Budget.
It is worth referring to some international comparisons to make the point. They show that our main rate of corporation tax for 1991, at 33 per cent., compares with a rate of 50 per cent. in Germany—36 per cent. on distributed profits—and over 40 per cent. in a range of other EC countries.
The comparison becomes even more interesting when one looks at the total tax burden on business as a percentage of total gross domestic product—that is, counting in taxes on corporate profits, employers' social security contributions and payroll taxes and then expressing it as a percentage of total GDP for the last year for which figures are available, which is 1988. That shows that in the United Kingdom corporate profits are 4 per cent. and total social security contributions 3·5 per cent., leading to a total burden of 7·5 per cent., expressed as a percentage of total GDP. That compares with 15 per cent. in France, 12·4 per cent. in Italy and over 9 per cent. in West Germany. So, compared to the EC average, at 7·5 per cent. we are markedly and handily below the EC average of 9·7 per cent. and below the Organisation for Economic Co-operation and Development average of 8·9 per cent.
If one wants a reason why Britain, far from being the investment desert that the hon. Lady has described, has become the favoured place for inward investment in the European Community, there it is. I see that the hon. Member for Islington, South and Finsbury (Mr. Smith) is amused by this, so I will give him the opportunity later to intervene. If any of my figures are wrong, I hope that he will correct me and put me out of my misery.
Thirty-nine per cent. of the inward investment in the European Community from outside the Community in the last year for which figures are available, 1989, came to Britain. France was next with just over 14 per cent. Of the inward investment available from the major non-EC manufacturing countries, no less than two thirds of United States' investment in the EC came to the United Kingdom, as did 40 per cent. of the Japanese. That is a vote of confidence in the United Kingdom and in the tax rates, and not just the tax rates on business but the tax rates on individuals, which are just as relevant.

Mr. Chris Smith: I am grateful to the Chief Secretary for giving way. I was not in any sense scoffing at the idea or prospect of inward investment, which is very welcome and essential. I was scoffing at the Chief Secretary's denial of the fact that we have at the moment in this country an investment desert. That is precisely what we have. Investment in industry as a whole is forecast by the Government themselves to fall by 10 per cent. in the course of this year, and investment in manufacturing industry is forecast to fall by even more. Investment in manufacturing industry is now at a lower level than when the Government came into office 12 years ago. I call that an investment desert.

Mr. Mellor: Most of the hon. Gentleman's comparisons are with the position at a historic high achieved under the very tax regime that the hon. Member for Derby, South spent most of her time attacking. The reduction in corporate taxation and the overall confidence in the United Kingdom engendered by a whole range of supply-side measures, particularly the breaking of the stranglehold of trade unions over so much of the economic activity in the country, led to a tremendous outburst of investment in this country. Between 1986 and 1989 alone investment increased by over 40 per cent. It is inevitable that there will be a falling-off from that peak, but the fact that it may fall by 10 per cent. does not seem to me to be any kind of indictment of the situation in which we find ourselves.

Mr. Denzil Davies: rose——

Mr. Mellor: I will develop the argument, if I may, and then of course I will give way to the right hon. Gentleman.

Mr. Davies: rose——

Mr. Mellor: I have told the right hon. Gentleman that I shall give way to him when I have fully answered the hon. Member for Islington, South and Finsbury. That is the way that I have always dealt with matters in Committee and I hope that it finds favour with other hon. Members—[Interruption]apart from the hon. Member for Newcastle-under-Lyme (Mrs. Golding), who has a voice of dissent which should he registered.
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If we take investment in manufacturing at constant 1985 prices, in 1984, when the fundamental changes in the corporation tax regime were made, it was £8·9 billion. In 1989 it rose to £12·4 billion. It is true that in 1990 it fell back to £11·9 billion. That is a reflection of the dramatic increase in recent years. There is absolutely no reason to expect that investment will not go back once confidence is restored and activity begins to turn up, as the hon. Lady conceded that it will. We know that it will.

Mr. Denzil Davies: Having had a low rate of taxation in comparison with the Germans, and having had a massive investment boom over the past three or four years, why have we such a massive deficit on trade and manufacturing goods with those very EC countries that have a higher rate of corporation tax?

Mr. Mellor: In fact, we have for the first time, in 1988 and 1989, seen an increase in Britain's share or world manufactured exports.

Mr. Davies: Answer the question.

Mr. Mellor: I am answering the question. The right hon. Gentleman does not do himself much service by barracking me from a sedentary position. I will give the explanation and, if he wants to intervene again, I will let him. He might listen to the answer because I hope that it will get near the point.
The point is that for the first time, after years and years and years of decline, Britain's share of world manufacturing exports has started to rise—by a very small amount, it is true. The fact that our manufacturing trade balance is in deficit with a number of countries is a reflection of consumer choice and the tremendous increase in wealth.
I will give the right hon. Gentleman an example. As a former Treasury Minister he will recall that the man on

average wages, with a non-working wife and two dependent children, was £1 a week better off in real terms at the end of Labour's period of office than at the beginning of it. Today that same family is £72 a week better off in real terms. Obviously a great deal of that spending power is expressed in purchasing imported goods. There is no doubt about it. Everyone associated with British manufacturing is only too well aware that, although British manufacturers have improved their performance in a range of areas, not least the car industry, which under the Government has been much more of a success story than it ever was under Labour——

Mr. Denzil Davies: rose——

Mr. Mellor: I will finish the point and then I shall give way. There are still areas in which, when put to the choice in a free market—it is impossible within the European Community to think in other terms, notwithstanding Labour's nostalgia for import controls and such things—many British families prefer to buy overseas goods. That is their free choice.

Mr. Davies: The right hon. Gentleman made an admission. As I understand it, he is saying that one reason why we have a massive balance of payments deficit is that the Government have cut taxation and income taxation. Is that what he is saying?

Mr. Mellor: That seems to be an argument by the right hon. Gentleman that he does not like people having more money in their pockets. That is a nonsensical position. We believe in spreading prosperity through society. Indeed, our record on that is far superior. When the right hon. Gentleman walks round his constituency and goes into people's kitchens, where he sees cookers, transistor radios and hi-fi systems, does he abuse the people for spending their money on imported goods, or does he resent the fact that today they have those goods when 12 years ago they did not? That is part and parcel of living in a society where the consumer, given resources, will make his or her choice, as is right.
The Government decided in 1984 to move to sharp reductions in the direct taxation of companies. As to the consequences, I have already pointed to the tremendous increase in investment in business which was so apparent and which will happen again, and also to the tremendous growth in jobs. Over 3 million jobs have been created in our economy since 1983.
Contrary to the industry-friendly gloss that the hon. Lady put on her proposal, what we see is really the second leg of Labour's twin attack on industry. The attack mounted today is an assault on the principle of letting industry choose what it wants to do with its own money. The idea is that a raft of incentives to invest, not yet disclosed but presumably not in things that industry would choose but in things that the Labour party would want to choose for industry, is to be preferred to allowing industry to have choice.
All the evidence of the seven years since the dramatic switch was made is that not only has investment increased, but the quality of investment has increased. I do not want that to dominate the debate. There will be plenty of other opportunities for that. It will be a most interesting debate.
On Sunday, the right hon. and learned Member for Monklands, East (Mr. Smith) revealed the precise extent of Labour's attack on the very people who are running


business—the middle managers and top management on whom our success depends. Under Labour, they would find their rate of tax increased from 40 per cent. to 59 per cent. All that would happen then would be an increase in the brain drain. We thought that we had done away with the brain drain.
The record shows that between 1975 and 1979 there was a net outflow of 68,000 professional and managerial people, whereas between 1983 and 1989 there was a net inflow of 30,000. That is part and parcel of creating a tax system which allows the decision-takers within industry, on whom a successful base depends, to keep a sensible proportion of their income. It is already being trailed in the newspapers that if people feel that they are returning to the tax rates that prevailed 10 years ago, they will again vote with their feet. Those are all reasons why the Labour party's proposals will come under increasing scruitiny.
I was anxious to focus primarily on company taxation. Now I shall deal with the amendment, which is extremely vague. The hon. Lady did not give us a crucial fact among the welter of statistics: what would be the cost of the attempt to determine for industry its investment decisions? We have had difficulty with that because much of the amendment is extremely vague. It is a classic example of the Opposition trying to have it both ways. On the one hand they are trying to hold out to those interested in the outside world that they have a precise set of remedies which mean that they will do better than we are doing, while on the other they withhold key pieces of information which allow the full implications of what they are doing to sink in. They must not think that we are not alive to that fact.
The amendment appears on one reading to be merely giving away a lot of money after deadweight investment. It appears to be willing ex post facto to subsidise certain investments that have already been made. I cannot see the point of that. Even if only new investment will be affected, even on a cautious estimate—for instance, costing the difference between the existing and the proposed reliefs for new investment only, assuming that investment continues at its present level, and not building in any increase that may take place within the period—in 1991–92 the likely enhanced cost would be about £200 million and in 1992–93 it would be a further £150 million.
Of course, the hon. Lady has not told us where that fits in with Labour's spending priorities, and what would have to give. The amendment gives a hint—a little tease—of an increase in corporation tax, which would be used to pay for it. That shows what the hon. Lady correctly described as a philosophical divide between the two parties. The Government believe in leaving industry to make decisions, based on it maximising the amount of profit that it retains in its hands for its own uses. In the long term, that will create a much more dynamic economy. I would rather trust a business man to make the decisions than the men in Whitehall. Labour is hankering back to the dirigiste approach to economic management that failed when it was last in office, and that has now been shown comprehensively to fail in those eastern European countries where it was the prevailing orthodoxy.

Mrs. Beckett: It is important to put on the record the fact that we have repeatedly said that we have no intention

of increasing the rate of corporation tax. The Chief Secretary should be aware of that, but if he is not I am happy to tell him.

Mr. Mellor: What I do not understand—and perhaps the hon. Lady will explain it to me—is the meaning of the reference in the amendment to a rate of corporation tax of 34·01 per cent. That is the proposed increase in the rate of corporation tax——

Mrs. Beckett: The Chief Secretary's civil servants could have explained that to him without any difficulty. It is purely a question of the technicalities of how to draft an amendment while being in order.

Mr. Anthony Coombs: The hon. Lady does not understand her own amendment.

Mrs. Beckett: With respect to the hon. Gentleman, that was an extraordinarily silly comment. Of course we understand our amendment. We had to draft the amendment in a certain way so that it would be in order for the tabling of amendments to the Finance Bill. There is no, and never has been any, suggestion of the Labour party increasing the rate of corporation tax.

Mr. Mellor: I am grateful to the hon. Lady for her clarity. It appears that, although the amendment proposes an increase in corporation tax, under pressure the hon. Lady said that she did not really mean it and it was just an attempt to keep within order. If so, that raises the question of what will pay for the proposal. Does she agree that, even on the most cautious estimate, it will cost at least £200 million in the first year and £150 million in the second year? Has she costed the proposal?

Mrs. Beckett: It is difficult to obtain accurate costings—a point that the Chief Secretary also made. We are offering our alternative to the Government's proposals and the Chief Secretary has identified the sums involved. If we targeted that sort of money on encouraging investment in manufacturing industry, rather than simply handing out money to industry, as the Government are doing in the Bill, there would be more value for our money.

Mr. Mellor: This is just a taste of things to come. As we get closer to an election, suddenly the newspapers are interested not only in what the Government are doing, but in what the Labour party is doing. That was evident in this weekend's newspapers. We now have another classic example of the Labour party's gesture politics. It is making a gesture towards what it regards as a disaffected section of the business community—those who would hanker after the good old days of investment allowances. It is flinging a little something in their direction as a bit of a tease without being prepared to say what that amounts to.
When put on the spot, the Labour party says that its proposal will not require an increase in corporation tax—it is to be a free lunch. It will be a further subsidy to business, and someone will have to pay for it. I thought that we now had a Labour party of fiscal rectitude, with everything that is spent having to be paid for. We have not been given the costings for this proposal. Instead, we are told that it is a virtue of a detailed amendment—not a Second Reading debate or an Opposition Supply day—running to more than 20 lines not to provide any costings. Our cautious costing of £200 million, which does not assume any subsidy of pre-existing investment, is simply to


be added to the dead weight of Labour's spending proposals—for which, sooner or later, people will have to pick up the tab.
The Leader of the Opposition misunderstands the fundamental basis of VAT, and we have been told that VAT is sacrosanct. We have also been told that the top rate of income tax absolutely will not go above 50 per cent. We are now told that corporation tax will not be increased. The range of choices from which the additional resources could come is now rather limited. Indeed, there is only one source—and this will not surprise anyone who admired the career of the right hon. Member for Leeds, East (Mr. Healey) when he was Chancellor—and that is income tax. The burden will fall on middle and lower-income, standard rate taxpayers. That is the uncomfortable truth that will become increasingly apparent.
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Labour Governments regularly start by soaking the rich. By the end of the time in office of the right hon. Member for Leeds, East, the rich had come to embrace even those poor souls who were hoping for an inflation increase in the income tax threshold to take them out of income tax, but the right hon. Gentleman was unable to afford that for large parts of his stewardship.

Mr. Chris Smith: Can the Chief Secretary explain why in 1979 the share of gross domestic product taken in tax by the Exchequer was 34 per cent., but it is now 37·5 per cent.?

Mr. Mellor: There has been a dramatic increase in a whole range of activities. Even with the urgent prioritisation that we have undertaken, there has been an increase in public expenditure. We fund our expenditure; we do not rely—[Interruption.] Labour Members do not want to hear this point because they do not like it. Under the stewardship of the right hon. Member for Leeds, East, in one year alone, at today's prices, the public sector borrowing requirement was £60 billion. I have already said, but it bears repeating, that the Labour party believes in the late President Hoover's proposition, "Blessed are the young, for they shall inherit the national debt." The Labour party would saddle future generations with costs that it is not prepared to fund properly.
The hon. Member for Islington, South and Finsbury increasingly must focus on the fact that if that is what it takes for the Government to run honest public finances and the level of public expenditure that we are currently running, how on earth will the Labour party cope with the public expenditure that will be needed to fulfil its pledges? The Labour party apparently wishes to remain constant to the exchange rate mechanism, which will not allow it to run up a huge public sector borrowing requirement without threatening Britain's position within the system.

Mr. Chris Smith: I am grateful to the Chief Secretary for acknowledging that the Government have increased the tax burden on the British people. Will he also confirm that, for a family on three quarters of the average wage, the tax burden has increased from 30·9 per cent. of income in 1978–79 to 33·6 per cent. in 1991–92?

Mr. Mellor: That question does not deal with the points that will be of most relevance to such families: their income, the amount by which it has increased, and the real increase in their prosperity. I have already given the figures. The disposable income of all families, including those below the average wage, has increased sharply. If it

has been necessary for the Government to take certain measures to put public finances on a level that attracts international confidence, and so allows us to maintain our position within the ERM—to which the Labour party says it is as committed as the Government—and if it has been necessary to prioritise public expenditure and so increase expenditure on key public services, such as health, by up to 50 per cent. in real terms, what are the prospects for the Labour party, with its raft of additional spending commitments, yet without any proposals on how to fund them? It will not be able to run up the public sector borrowing requirement in the way that the right hon. Member for Leeds, East took for granted. That is something on which the Opposition will need to focus because we shall return to it in due course, although at a time that is almost certainly not now.

Dame Elaine Kellett-Bowman: Does my right hon. and learned Friend agree that precisely the same people would suffer under Labour as suffered last time, the school teachers and the nurses, who suffered from massively increased taxation and national insurance contributions and who, under the Opposition's categorisation, will be known as the rich? They certainly were not rich under Labour. They are a great deal better off now.

Mr. Mellor: Indeed, and a number of such groups saw a fall in the real spending power of their incomes during that period.

Mrs. Beckett: Does the Minister think that the hon. Member for Lancaster (Dame E. Kellett-Bowman) knows that this Government put up the rate of national insurance contributions from 6 to 9 per cent.?

Mr. Mellor: We are talking about people's disposable incomes. That is the key point. When we talk to our constituents on the doorstep, we discover that they are concerned about what they can buy this year compared with five or 10 years ago. On that test, this has been one of the most spectacularly successful decades ever in Britain. I suspect that, as the election approaches and the Labour party's expenditure proposals are scrutinised with the rigour that they will be, and their tax proposals similarly, people will begin to realise that these are boons which do not necessarily translate into a new Government, unless it happens to be a Conservative Government.
The hon. Lady, as she was bound to do, has attempted to discredit the Government's record on the treatment of industry, but she knows only too well that whatever quibbles there may be from time to time in a relationship in which industry will always feel free to make its points, as we feel free to make ours, two things emerge from all that has been said by the CBI, the Institute of Directors and others. First, there is a recognition of the tremendous success of the 1980s and the fundamental and beneficial changes that were made to the United Kingdom economy then. Secondly, there is the welcome that they gave to the Budget. I have already quoted in these debates—I shall not weary the House further with them, although I could if pressed—the glowing welcome given to the Budget by every collective body representing industries, such as the CBI, the Institute of Directors, the National Federation of Self-Employed and Small Businesses and the Association of British Chambers of Commerce.
I shall just quote the president of the CBI, Sir Brian Corby, who said:


This is almost precisely the Budget that the CBI recommended—a Budget for soundly based recovery, for saving and for investment. The prospect for further reductions in interest rates, the resumption of growth and low inflation are better tonight than they were this morning. The Chancellor has listened to those who create the nation's wealth.
Obviously, in what is not a monochrome society, and I hope never will be, there will be some who will look back with nostalgia to the good old days of investment allowances and so on, but I do not think that there are all that many of those. Most people recognise that in the end a business that retains more of its profits will be better able to direct itself and to make its own decisions, which should not be distorted by Government.
So much of the debate, which inevitably, Sir Paul, as the first debate on this year's Finance Bill, you have been kind enough to allow to go a little wider than the immediate matter under discussion,comes down to the recession and its ending. It is clear from all sides that, while undoubtedly this has been a sharp and difficult period through which companies have had to go and are still having to go, a growth of optimism is now becoming apparent. It was apparent last week in the CBI's latest analysis of opinion. It is even more apparent today with the publication of the Institute of Directors' bi-monthly survey which shows optimism about the economy recovering sharply at plus 33 per cent. from minus 64 per cent. in February, directors' confidence about prospects for their own companies up to plus 37 per cent. from minus 36 per cent. in February, and 35 per cent. of respondents expecting a positive net investment in the next six months.
I appreciate that many companies still have a good way to go, but I believe that it is clear that confidence has returned and that what we are proposing in the Finance Bill will assist industry's cash flow, will assist in the building of that confidence and will assist in the measured and strong recovery of the British economy from the difficulties of the last several months. On that basis, I hope that in due course the House will not accept the Opposition's amendment but will endorse the principles of clause 22.

Mr. Sheldon: The Chief Secretary quoted with approval those who had accepted many of the arguments of the Budget and who had welcomed it. I, like many others, have in my time made the fairly obvious comment that a Budget that is cheered when the Chancellor sits down is often disliked and disapproved of by the time we reach Third Reading. lain Macleod was one of those who made that comment.
Another comment that lain Macleod made during the course of a Finance Bill debate was that one of the least useful arguments in discussing any amendment is to talk about its defective aspects and to pick holes in it. He pointed out frequently, and eventually silenced those who opposed the argument, of which I was not one, that it is the Government who have the resources to cost measures and to make the proper amendments if they feel convinced by the arguments. I recommend that course of action to the Chief Secretary and others on the Treasury Bench.
My hon. Friend the Member for Derby, South (Mrs. Beckett) was right to table an amendment of this kind on one of the crucial issues of our time. It is of enormous importance that we realise the damage that has been done

to manufacturing industry and come to accept the need for changes in so many aspects of the way in which Governments deal with it. There was a time when the Government scorned manufacturing industry; it was just one of many, and it was the service industries that were the industries of the future. It was only as time went on that they began to realise—it has come rather late, and it has not come wholeheartedly even now in some quarters—that the importance of manufacturing industry is that it is the base of the economy from which so many things follow.
The fact that there has been a loss of investment means that we shall find ourselves in great difficulties in getting our balance of trade right. The important thing about our balance of trade is that, if investment has been so good, why do we have a balance of trade deficit at present? Why is our balance of payments currently so weak? We are in the middle of a deep recession, and no one can underestimate its extent. Everything that is said about the future of the recession is only guess work; nobody knows. I, and I am sure many other hon. Members here, speak to a number of business men every week, and we know that there is no question but that they are suffering and that the problems are even more serious in manufacturing industry. It is right that we should press these matters upon the Government and inform them of what is really going on in the country at present.

Mr. Denzil Davies: Does my right hon. Friend agree that one reason why investment has not borne fruit in trade is that, in the main, it has been in non-tradable activities such as banking, finance, communication and property?. Investment in tradable activities—items that have been traded across the exchanges—has been very low.

Mr. Sheldon: That is absolutely right. It is a point that I would certainly wish to make myself. My hon. Friend knows my addiction to investment in plant and machinery. It is that which is the fountainhead of exports of manufactured goods. I have always wanted to encourage such investment. Investment can be a carpet in an office, making a grand office which produces nothing but which creates an impression. Britain needs to increase its manufacturing exports, but given the increase in world trade, that is not enough; imports must be considered as well. The European Community, as well as the general agreement on tariffs and trade, has played a part in increasing world trade, which I wholeheartedly welcome. However, our exports need to rise with it, and Britain is rather weak in that respect.

Mr. William Cash: The hon. Gentleman was rightly enthusing about the European Community, but I cannot go along with his view concerning protectionism. The draft treaty articles prepared with a view to achieving political union have been resolutely kept away from the Library for some time. However, a copy has been deposited in the House, and is now available. It is known as a non-paper, but in the light of the hon. Gentleman's remarks, perhaps he would care to consider the implications of that draft treaty on a single currency and on other measures that some of us might regard as rather protectionist.

Mr. Sheldon: I have always been in favour of a Europe that is open and free, but I have discerned a number of restrictive aspects in the Community. I was merely referring to the increase in world trade and to Britain's need to export more manufactured goods to match it.
Whenever one talks today to industrialists, or to the executives of any type of company, a large part of the conversation always concerns credit control. People are worried stiff about firms going under, others paying late, and still others turning into bad debts. I welcome the Budget's provisions for bad debt relief, but it is only giving back money that companies should never have risked in the first place had they known that a bad debt was likely to develop. It is a useful provision, but not a cause for much satisfaction.
I know of some companies that are having to reprogramme their computers to allow not for 120 days credit—which is the normal period at the top of the range—but for 150, 180 or even 210 days, in calculating how they stand in relation to some of their slow payers. One used to pay value added tax in arrears, which produced a cash flow, but today VAT generates a negative cash flow, in most cases, if not all, which is a burden on industry that it did not used to bear to anything like the same extent.
Companies are compelled to divert a substantial portion of their resources to credit control. One can tell from recruitment advertising that credit control managers—some of whom have almost reached the status of directors—are much more important than they used to be. Much of that is due to high interest rates and inflation.
A country's balance of trade is a serious matter when it is in the middle of a recession. No one knows when. or if, recovery will come. It is all pure guesswork. President Hoover spoke about recovery being around the corner, and about "normalcy". He really believed that nonsense, but had no basis for doing so. The only basis for our faith in a recovery is our belief that the world is subject to a virtuous cycle of growth, interrupted by recession now and again. However, we cannot know when things will change, or if they will change. No one can predict whether an improvement will come in the summer, autumn or winter. Anyone who wants to try, by reading the entrails of a chicken, is welcome to do so—but all those people who speak of a recovery have no more insight than anyone else.
We used to have stock relief when inflation increased, because companies were being charged corporation tax on notional profits. They were buying their stock at a higher value, and being charged higher corporation tax accordingly. The same is happening today. If inflation is running at 10 per cent., and one is paying corporation tax of 33, 34 or 35 per cent., one is being charged 3 per cent. extra because of one's stockholding. Worse still, the biggest stockholder is manufacturing industry, which not only has stock but work in progress.

Mr. Tim Smith: My recollection is that the right hon. Gentleman was one of the Treasury Ministers who introduced stock relief in 1975 when inflation was running at 25 per cent. Company cash flow became so dire that there was no alternative, if widespread liquidations throughout industry were to be avoided. Surely getting down inflation should be the priority, because then we would not have to worry about whether or not to tax stock.

Mr. Sheldon: I could not agree more, but one must remember that the inflation of 25·9 per cent. to which the hon. Gentleman referred resulted from the boom in oil prices, which increased fivefold. In 1980, Britain had 21·9 per cent. inflation as a result of the Government's own stupid actions after they had been in office a year. That arose from the belief that VAT could be doubled but that prices would not be affected because the Government controlled the money supply. Rarely has such economic nonsense been spoken in the House than at that time, when the Government claimed that inflation at 21·9 per cent. could not happen because they would restrict pay levels by the monetary aggregate being held in check. I agree that the best thing is to reduce inflation—but where it exists, it must be dealt with and brought down in other ways.
Recovery is supposed to come from consumer confidence. What is that meant to mean? Is it meant to mean spending our way out of a recession? Are we really looking for a consumer boom? Is that the proper way to achieve recovery? I have never heard such nonsense. It is ridiculous to engineer a boom for political reasons. Real recovery can come only through investment or exports. One way of achieving that is to increase investment so that British industry can both improve its exports and compete better with imports. One should never underestimate the importance of import competition. More firms have closed as a consequence of import competition ruining their industry, and because of their failure to act, than from their failure to achieve desirable export levels.
The great economies became dominant through manufacturing industry—not through the provision of services or by devising clever ideas in the City. They are important, but they should translate industrial success into commercial success. That is their value.
One thinks of the great British economy of the 19th century, of the United States towards the end of last century and up to the start of the second world war, and of today's great economies of Germany and Japan. They were all created through manufacturing industry. Those of us who wantonly ignore that truth are failing to learn one of the most important lessons of our time.
When Britain faced great problems in the past, we tended to unite and to deal with those difficulties in a sensible way that satisfied the expectations of most people, if not all. We have failed utterly to do so on this occasion, which is what I find so bad.

Mr. Ian Stewart: I am glad that my right hon. and learned Friend the Chief Secretary found it difficult to understand the Opposition's aim in tabling the amendment. The hon. Member for Derby, South (Mrs. Beckett), who spoke to it, failed spectacularly to explain what the amendment was about or what its practical consequences would be.
The hon. Lady began by trying to paint as gloomy a picture as possible of the state of the economy and of the prospects for recovery, but the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) and she will know that the predictions of recovery are based not on crystal ball gazing but on many well-established indicators with which the right hon. Gentleman will be familiar from his time at the Treasury. Those indicators are a substantial recovery in stock market prices, a considerable fall in interest rates and an improvement in confidence reported by industrial surveys. After a lapse of time, all those indicators have traditionally and invariably led to a recovery in the


underlying economy. My only suggestion to my right hon. and hon. Friends at the Treasury is that the Government might consider introducing another indicator—the urgency with which the Opposition are calling for an early election.
The fact that the Opposition are now looking forward to a recovery—the hon. Lady admitted that—has sharpened the stridency of their calls for an early election before the recovery takes place and before the benefits of the policies which the Government have followed for the past two years are evident. Their calls for an election may be maintained for the time being, but as the year progresses, and as the evidence of the economic recovery develops—as it will—it will be seen that the Opposition hope to have an opportunity to test public opinion at a time when those benefits have not yet come through.
I am baffled by the message which the amendment is meant to contain, because the amendment does not bear much relationship to the hon. Lady's speech. I was disappointed in what she said as I remember her days as an Education Minister when she used to do her homework and did not talk such nonsense. She said that the amendment, which would have a retrospective effect on capital allowances for manufacturing industry in previous financial years, was designed to promote investment in manufacturing industry. I ask her a simple question: is it the Opposition's policy to introduce a permanent extra incentive to capital investment by manufacturing industry, along the lines of that contained in subsection (2)(b) of the amendment? Is that the Labour party's intention?

Mrs. Beckett: We have made it clear that the amendment is intended to raise the issue of investment allowances. We have also made it clear for some time that we think it is especially important to target the allowances on manufacturing in the context of a recession. The allowances would not necessarily be permanent. If the right hon. Gentleman is not aware of that, he has not done his homework.

Mr. Stewart: It is strange that the hon. Lady should raise the issue of investment allowances but have no idea about Labour's policy. It is typical of the way in which the Opposition Treasury spokesmen go about their business. They made a complete nonsense of the shadow Budget. They got their sums wrong and deceived the public and the House.

Mrs. Beckett: Will the right hon. Gentleman give way?

Mr. Stewart: I shall give way in a moment, but I shall finish my point. The Opposition's calculations are a disgraceful deception.

Mrs. Beckett: The right hon. Member is untruthful as well as extremely unpleasant. He is also inaccurate. If he were to check the record, he would find that the Chief Secretary and the Chancellor conceded that our calculations were correct. This is the third occasion during a brief speech in which—[Interruption.] The Chief Secretary said that our figures for child benefit were correct if one did not feed the increase in child benefit into child support, which we did not intend to do. The Chief Secretary is again confirming that our figures were correct.
The right hon. Member for Hertfordshire, North (Mr. Stewart) has not been speaking for very long. He has been insulting and unpleasant on three occasions. I do not mind that—I expect it of him—but if he accuses me of inaccuracy, he should get his facts right.

Mr. Stewart: I shall leave my right hon. and learned Friend the Chief Secretary to deal with that, but the hon. Lady makes my point for me—I touched a raw nerve. She will have to do better. She said that she did not know whether it was Labour party policy to introduce extra subsidies for industrial investment. She wants to raise the issue but she has no policy. She said that Labour's policy was to promote industrial investment. How can a subsidy on investment that has already taken place be a policy to promote industrial investment? It is nonsense from start to finish. I am sorry to have to point that out in blunt terms, and the hon. Lady may think me discourteous, but if she tables nonsensical amendments she deserves to have them described as such.
The hon. Lady also said that we need to discriminate in favour of manufacturing industry. I wonder whether the Labour party has forgotten all the lessons that it learned 20 years ago about selective employment tax. It tried to introduce a subsidy to manufacturing investment by constructing a system of favourable taxation to companies that are described in the amendment as being the manufacturers of goods, materials and so on. It was a catastrophic disaster. It was unworkable in practice and caused endless problems between subsidiaries and parent companies and between different companies within the same group. It proved totally unworkable. The hon. Lady represents a party which pretends to be ready for Government but which is ready to go back to remedies that failed catastrophically when they were last introduced. That was under a Labour Government—one hardly needs to ask.
I readily concede that the hon. Lady was honest enough to say that there was a great difference between the approach taken by the Government and that of the Opposition to the taxation of business. She accepted that it was part of the Opposition's philosophy to subsidise what they regard as the virtuous part of the economy—those involved in manufacturing—rather than those involved in selling the manufactured goods. I have never understood how there could be a prosperous economy if we discriminated against those who ensured that products were sold but favoured those who produced the product that might or might not be saleable. It is economic nonsense, and it is sad as well as rather frustrating to learn that the Labour party is reviving an old notion which failed so comprehensively.
If the Labour party eventually decided that it had a policy, and if that policy involved a 40 per cent., or substantially higher, investment allowance for manufacturing industry, as my right hon. and learned Friend the Chief Secretary pointed out, it would mean a substantial loss of revenue which would have to be recovered elsewhere through a corporation tax system, heavier Government borrowing, or the imposition of another type of taxation—probably income tax on basic rate taxpayers.
The purpose of the Government's reforms in the 1980s was to achieve lower rates of taxation with fewer allowances against them. Although at the time there was much apprehension about the effect on investment and on the profitability of companies, the reforms were followed


by a substantial increase in investment and in the profitability of companies. The Government's yield from corporation tax rose and the rates of corporation tax could be substantially reduced.
Investment decisions came to be made on the grounds of profitability and of the likely success of the investment in commercial terms rather than on their use as a tax shelter for profits that the company had made and on which it did not want to pay tax. That is what happens if there is a higher rate of tax and many allowances. Yet the hon. Member for Derby, South suggests that we should go back to a system of higher allowances. It is inherent in that system that one would have to have higher rates of taxation. If those were not higher rates of corporation tax, they would be higher rates of taxation on something else. One would bring back a range of distortions in the economy which, thankfully, we have been able to get rid of over the past few years.
On all the fundamental points, the amendment is highly unsatisfactory. It offers to produce a deadweight subsidy of investment that has taken place in the past without any incentive to investment in the future. It does so in a discriminating fashion by picking out arbitrarily certain types of company and favouring them. The Labour party says that it would not be at the expense of others. How can it not be at the expense of others? If one is favoured, someone else will have to pick up the bill. The amendment goes against a system which has been found to be satisfactory in the commercial and industrial worlds over the past few years of getting lower rates of taxation so that companies can take a sensible decision about how they use their cash flow. That is one reason why industry, after the reform of the 1980s, has invested so much more and has made better use of that investment. Investment itself has no merit unless it is properly used. We want to encourage not investment itself but the proper use of investment, which is more important. The Labour party has never been able to understand that.
Industry now needs—and companies in north Hertfordshire tell me that they need this—low inflation, lower interest rates, a stable exchange rate and low taxation. We are already on the way to far lower inflation. There has already been a substantial fall and large falls are still to come throughout the year. Interest rates are already on the way down and have further to fall. The exchange rate mechanism has given a framework of stability in the exchange rate in trading with European partners. The low levels of corporate and personal taxation have increased incentives for efficiency and have given a far better prospect of recovery than we should have had under the old tax system after which the hon. Member for Derby, South and her colleagues hanker.
I hope that the Committee will reject the amendment not only because of the dismal way in which it was moved but because of its major shortcomings of substance. It is rather disgraceful that the Labour party should table an amendment that is so unsatisfactory and so poorly explained.

Mr. A. J. Beith: The Chief Secretary to the Treasury cannot draw a great deal of comfort, as he sought to do, from the various surveys that have appeared in recent weeks about business confidence and business prospects. He draws a different message from that drawn by some of the sponsoring bodies. The Confederation of British Industry argued not that its

survey fully supported the Chancellor's confidence, but that it was too soon to talk about an early recovery. The surveys show a low level of projected investment following a recent sharp fall in investment. That is a worrying problem. The question that we must address now is whether changes in the corporation tax system can materially affect it and bring about a great improvement. If so, we must ask what kind of change. There is no advantage in denying the scale of the problem or in being unduly optimistic about the speed and scale of the recovery which we all hope to see.
Can changes in the corporation tax regime materially improve industrial investment and investment that will be useful rather than simply induced by tax changes? Clearly, the Government will want to argue that the corporation tax changes in the Budget will have precisely that effect. However, they cannot get away with saying that the changes represent a massive net reduction in the burden on business represented by taxation because they consistently ignore other factors, such as the massive increase in the uniform business rate. When added up, it is a far larger sum than that returned to business by the tax changes in the Budget. By opting to increase the uniform business rate by the largest legally permissible sum—10·9 per cent.—the Government not only put in a figure double their projected rate of inflation, but behaved in the manner for which they criticised local authorities—that is, putting the rates up by more than inflation. The Government have done that on such a scale that the increase greatly outweighs the tax changes.
The increase tends to have an especially severe impact on small business. Some of the small business organisations have been quick to point out the damaging net effect on their financial position of the Budget proposals. The Forum of Private Business has been especially critical on that point, not only because of the uniform business rate, but because of other changes including the funding of sick pay and other liabilities that are landing on business.
We are discussing three categories of change: the Government's proposals, Labour's proposals and our proposals. I listened carefully to the hon. Member for Derby, South (Mrs. Beckett) when she moved the amendment. At the end of her speech, I did not understand what Labour intended to do through the amendment. I was helped a little by the Chief Secretary's exposition and then by the hon. Lady's intervention about the technical reasons for the wording of the amendment. It was not clear from the amendment that the increases were included only for the amendment to be in order. Still less was it clear whether the reductions in corporation tax proposed by the Government would also be implemented by the Labour party. That is the crucial hole in the costings. Labour's alternative Budget included proposals for allowances instead of a reduction in the rate of corporation tax. That is part of the amendment. However, the amendment would allow both of those changes to proceed. That may also be for technical reasons. However, it did not become clear whether Labour proposed to retain the reduction in the level of corporation tax. If it does, there is another whole element of costing to find.

Mrs. Beckett: I said clearly and explicitly that we propose to retain the reduction in corporation tax that the Government are instituting. We do not propose to increase it. I had no idea that hon. Members would be so interested


in the technical details of the amendment. If I had, I should certainly have explained it. We made it clear that the intention was to raise the issue of the choice that arises in the use of specific quantums of resources—between investment allowances and using such resources to cut the tax rate. I thought that I had made it plain. If I did not make it plain to the satisfaction of the hon. Member for Berwick-upon-Tweed (Mr. Beith), I am pleased that he has given me the opportunity to do so now.

Mr. Beith: The hon. Lady still has not made the matter plain. She first said that she intended to keep the reduction and then that we are talking about a given quantum of tax reduction which can be used either for a reduction or for allowances. If I may put the hon. Lady's case for her, it seems that the logic of Labour's position is that it would be better to use the money for allowances than for a reduction in the total rate. The hon. Lady was quite specific in saying that she did not propose to remove the reduction that the Government are introducing, yet she still wishes to argue for allowance changes.

Mr. Mellor: I am listening with great interest to the hon. Gentleman. Tabling a 20-line amendment is a pretty bizarre way in which to raise an issue. The issue could have been raised in a debate on the clause itself.

Mr. Beith: I agree. I took the amendment to be a set of serious proposals because Labour is quite specific in other ways, with which I shall deal later. The Labour party is entitled to propose a wholly different strategy about corporation tax. However, it is still not entirely clear to me whether Labour wants both strategies at the same time, or just one. If it is both at the same time, a lot more money will need to be found from somewhere. It cannot be found through the means specified in Labour's alternative budget. From what the hon. Member for Derby, South said earlier, the figures were not accurate. Indeed, the alternative Budget assumed that £1 billion could be found from closing a loophole on overseas trusts. We estimated that about £500 million could be found from closing that loophole. The Government estimate, although admittedly on a slightly more limited change, a far lower figure, which we shall debate subsequently. The prospect of £1 billion being gained from that change has not materialised in any further discussions. The costings figures are, to put it mildly, in considerable doubt.
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I argue that there should be a different strategy that is directed towards the fundamental weakness of the corporation tax system—the way in which it is affected by inflation. The strategy should not be based on allowances that are directed towards manufacturing industry. In our alternative Budget we advance the argument that corporation tax allowances should be indexed. That would begin a reform of the corporation tax system. It should be remembered that the corporate tax burden increases as inflation increases. Our proposal would move the system towards neutrality with respect to inflation and provide some further assistance for investment. I submit that it would lead to a better use of resources. I should explain for the avoidance of doubt that I am talking about using the same resources and presenting the indexing of allowances

as an alternative to a straight cut in the level of corporation tax. In other words, there would be a different use of the same resources from that proposed by the Government.
I do not believe that the Government's approach leads to resources being used in the most efficient way, either for the promotion of investment or the reform of the tax system. We are talking of the expenditure of £380 million in this tax year. That is a substantial sum which would go most of the way to paying for indexed allowances. The Labour party's alternative is to increase allowances in a way that might help to increase some manufacturing investment. At 40 per cent. the allowances would be so high that it is difficult to avoid the conclusion that some unnecessary or misdirected investment would arise. I am still unconvinced that we can readily separate manufacturing from other valuable fors of industrial investment.
Is it always better to build machines rather than to provide services? Is that always a better allocation of investment resources? I am not convinced that it is. Why should someone who proposes to make an investment in inland waterways to provide a better and more environmentally friendly form of transport have that investment regarded as less suitable to attract allowances than an investment in manufacturing output?

Mr. John Battle: To take up the hon. Gentleman's example, it is not possible to clean out inland waterways in the absence of the appropriate machinery. The service sector often depends on the manufacturing sector.

Mr. Beith: Both sectors are interdependent. If the system is neutral as between manufacturing and services, both areas can benefit from allowances at the same level. It seems a roundabout way of encouraging inland waterways to hope that a certain form of manufacturing will develop in the United Kingdom rather than elsewhere and to tilt the allowances in that direction. Why should specialised maintenance be excluded from the benefit of investment allowances when it may be crucial to maintaining industrial competitiveness? It is said that there is a proper distinction, but that case has not been made out.
Reforming the corporation tax system so that it is not affected by inflation by indexing depreciation allowances would give some incentive to increasing investment as a long-term principle. We would build into the tax system something that would last into the future and something that would be predictable in its impact. It would not produce a very short-term high level of investment. I do not imagine that the Labour party envisaged a 40 per cent. level of allowance lasting indefinitely—I assume that it sees it as a short-term boost to investment. Perhaps it would be a longer-term boost, but it would not survive all Governments into the future. A reform of the system that would be likely to last would be a continuing and predictable guide to investment decisions for the future and one that would lead to a more suitable use of resources.
The way in which inflation affects the corporate tax system should be underlined. The tax base increases with inflation through stock depreciation. When the right hon. Member for Blaby (Mr. Lawson) introduced the 1984 changes that got rid of stock relief, I think that he felt that he was in the process of driving inflation out of the system.


If he had been able to predict the rates of inflation that we have experienced since then, perhaps he would not have been so ready to get rid of stock relief at that time.
The annual writing down allowances are based on historic cost rather than current cost. Thus inflation reduces the real value of the allowances and the tax base increases with inflation. A recent paper produced by the Institute for Fiscal Studies was the result of an attempt to quantify the factors that I have outlined and others in the United Kingdom economy. It used a sample of 750 firms and estimated that if inflation remained constant at 10 per cent.—heaven forbid—from 1990 to 1993, corporate tax liabilities would be one third higher in 1993 than they would be if inflation was at zero. The effect of 10 per cent. inflation on the tax system would be to raise the cost of capital by 2 per cent. above its cost with zero inflation. The paper concludes that almost all the corporation tax bias against investment at current inflation rates results from the inflation non-neutralities in the present tax system. That is the use of horrible jargon, but there is a strong argument for getting rid of the effect of inflation on the corporation tax system.
Firms are hit extremely hard during times of high inflation. Interest rates go high and the Government squeeze the economy. It seems the least appropriate time during which to increase the corporation tax burden.
In that context, I raise another issue in the hope that the Government will give it further thought. I wonder why the Government still have not dealt with the problems of unrelieved advance corporation tax. It is still a fault in the tax system. Unrelieved advance corporation tax hits especially export-earning companies with a high proportion of overseas earnings that do not have mainstream corporation tax against which to set the advance corporation tax that they have already paid. That is another area of corporation tax reform on which the Government could engage.
The extent to which corporation tax can induce the sort of investment that we want in industry can be exaggerated. The decisions that we take on this part of the Finance Bill will not achieve a great turnround in investment. The decisions that we take could distort the pattern of investment, especially if our approach were loaded too much in a particular direction. Perhaps the most useful service that we could perform would be to make the system more neutral in respect of inflation and to ensure that it provided a predictable basis on which companies could plan for the future. They could then make investment decisions without the fear that they are dependent on incentives that might quickly be withdrawn or that they will be undermined by a pattern of taxation that is distorted by inflation.

Mr. Tim Smith: I was very interested in what the hon. Member for Berwick-upon-Tweed (Mr. Beith) said about unrelieved advance corporation tax. There is a problem, and it is one that we should address. Indeed, it is a major problem for many of Britain's most successful companies that have major overseas investments. I am not sure whether the hon. Gentleman is a member of the Select Committee on the Treasury and Civil Service. As we are talking of a tax issue that has major economic implications—it is not an arcane point—it could well be taken up by the Committee at some stage. It is a complex but extremely important issue that bears serious consideration.

When I first read the amendment, I struggled to understand its implications. I thought that it might be the Labour party's contribution to tax simplification. The hon. Member for Derby, South (Mrs. Beckett) said that the object of the exercise was merely to raise an issue. Surely she could have tabled an amendment that proposed that capital allowances should be increased from 25 per cent. to 40 per cent. for one year. We would all have understood what she meant. As has already been said, the amendment is wholly retrospective. The financial year 1990 has finished, and there can be no question of encouraging new investment. The amendment would merely produce a windfall gain for companies that have already invested.

Mrs. Beckett: This is becoming incredibly tedious. The amendment has to be retrospective for it to be in order. The clause refers only to the rate of corporation tax for the coming year. I assure the hon. Gentleman that the amendment was the simplest way that we could find of raising the issue. We wanted to ensure that it was not technically defective. If we had tabled a technically defective amendment, would Conservative Members have spent all their time saying that it was a shame that the Opposition were unable to produce anything but technically defective amendments?

Mr. Smith: I am happy to deal with the merits of the amendment; I shall leave aside the technicalities. I shall merely say that it would have been better to seek to amend the following clause, which deals with next year's corporation tax rates.
What is the most effective way of encouraging increased investment? Can we do it best by introducing increased capital allowances? I suggest that there has been some falling away from the record levels of investment that we saw in 1986, 1987 and 1988 because of a reduction in corporate profitability as a result of the recession.
Much the most important source of investment funds in the United Kingdom is retained profit, not borrowings or new equity investment and certainly not extra tax reliefs. The great thing about the 1980s was the huge increase in profitability in British industry and the ability of industry not only to distribute more and pay more to the taxman but to retain more in the company and invest more. That has been the main source of increased investment in the past few years.
The encouraging news is that it is forecast that next year and in 1993 we shall see a resurgence of profitability in British industry. Therefore, we can reasonably assume that we shall also see a resurgence of investment. Indeed, when one talks to people in business, they do not all say that they have cancelled their investment programme. They say that they have deferred their investment decisions as a result of the uncertainties brought about by the recession and the loss of business confidence.
It is not possible to continue deferring investment decisions for ever. For example, if a company has a programme of replacing its vehicles, whether company cars or its commercial fleet, it cannot defer the decision to invest for ever. It becomes more expensive in terms of repairs and maintenance to do so. Eventually, the company must make a decision to invest. Many investment decisions have been deferred. Companies are


simply waiting for the restoration of confidence. When that happens, we shall undoubtedly see a resurgence of investment and profitability.
Whether the tax system can encourage a resurgence of investment is a side show. We need to have a corporation tax profit which is as close as possible to the accounting profit. That is important because otherwise there are distortions. My right hon. Friend the Member for Hertfordshire, North (Mr. Stewart) referred to what happens when such distortions occur. I remember what happened because I had the misfortune to work in industry when we had a Labour Government from 1974 to 1979. At that time, people would work out the profit at the end of the year and calculate the tax of 52 per cent. Then they would say, "Hang on a second—if we make some more investment or bring forward some investment decisions, we can obtain 100 per cent. allowances." Decisions were not made on their merits or because it was a sensible commercial investment and the timing was right; they were made for tax reasons, and I cannot think of a worse reason for making an investment decision.
There is a distinction to be made between the quantity of investment and the quality of investment. It is not sufficient simply to seek more investment. We have already heard about what happened in eastern Europe, where many countries had record levels of investment but appallingly bad productivity and output.
It is important to have a tax system that does not encourage people to make decisions for the wrong reasons. I supported the changes made in the Budget of 1984. The Confederation of British Industry was not happy about those changes. It was a radical change from a 52 per cent. rate of corporation tax with high allowances and stock relief to a 35 per cent. rate of tax and lower allowances. The CBI was worried about what would happen. I remember the representations that were made to Back-Bench Members about those changes. However, the Treasury was right to make those changes. They were the right ones and we have seen a huge growth in investment, profitability and, until recently, the corporation tax take since the changes were made seven years ago.
In both the corporation tax and personal tax systems, we should have—and we now have—as broad as possible a tax base and as few reliefs as possible. That is the most sensible way to proceed. As I said, it is also important that the corporation tax profit should be as near as possible to the accounting profit. I say that not merely because it is neat to do it that way, but because, in accountancy terms, the object of depreciation is to amortise the cost of an asset over its useful life. That is not easy. It involves subjectivity. There is room for differences of opinion about the rights and wrongs of it.
It is not possible for the tax system to follow accounts exactly—we must have some form of arbitrary rule—but 25 per cent. on a written-down basis reflects the way in which assets are generally used. The only worry—I dare say that it is an important one—was raised by the hon. Member for Berwick-upon-Tweed. It is what happens when there is inflation. As soon as there is any inflation in the system, one has a problem. It then costs considerably more in money terms to replace assets than it did to acquire them in the first place.
It is better to focus on developing tax policies which bring inflation down rather than policies which accommodate and institutionalise inflation. I should be wary of doing that. Even though there are some distortions, it is probably better to stick with the historic cost accounting approach and attempt to bring inflation down. It would not be sensible to pursue the proposal in the amendment, apparently at a cost of £200 million to the Exchequer this year. The hon. Member for Derby, South has produced no evidence that the proposal would produce the investment that the country needs, so I hope that the Committee will reject the amendment.

Mr. Denzil Davies: We have had several nit-picking speeches from Conservative Members, from the Chief Secretary to the Treasury downwards—or upwards. I had hoped that we were seeing some change of attitude in the Tory party to manufacturing industry. However, that did not come out in any of the speeches that we heard tonight.
If my hon. Friend the Member for Derby, South (Mrs. Beckett) had tabled an amendment to give a tax subsidy, as the right hon. Member for Hertfordshire, North (Mr. Stewart) called it, or tax allowance to banks, stockbrokers or property companies, to encourage the purchase of shares by individual persons, to encourage personal equity plans, business expansion schemes or, indeed, employee share ownership schemes or to further any of the other items of fiscal engineering that the Government have undertaken, we should have heard loud guffaws of approval from the Conservative Benches. But instead the amendment seeks to encourage manufacturing industry.
The attitude of Conservative Members to the amendment confirms the deep-seated hostility to manufacturing industry in the Tory party, or at least the modern Tory party since 1974. I have observed that attitude carefully from the Opposition Benches and from the Government Benches for a long time. It came out again in the nit-picking speeches that we heard this afternoon. The hostility goes back 12 years. Some of us were on these Benches or the Benches opposite during the last 12 years and before.
In 1977, 1978 and 1979, the Labour Government sought to introduce measures to improve our manufacturing industry. Those measures were not only opposed but treated with contempt and derision by the Tory Opposition Treasury team. Yet in 1979, we had a surplus in our trade in manufactured goods. The right hon. Member for Hertfordshire, North called the years of the Labour Government the years of failure. I suggest that they were the years of success. The balance of trade is the only indicator of success for the manufacturing sector. Manufactured goods are the only tradable commodity across the exchanges.
We now have the years of failure. Last year, we had a £16 billion deficit in our manufacturing trade, despite our wonderful corporation tax system, which is supposed to be far better than that of Germany or France. Yet Germany and France managed to have a surplus in manufacturing trade, while we have managed only a deficit under the Tory Government.
I remember that, in 1979, when Lord Joseph became Secretary of State for Trade and Industry, one of the first things he did was to take away investment grants, which helped small companies in the regions. Then he whittled


away at the selective employment regions, the development areas and all the assistance that has been given to the regions, mainly to manufacturing industry. Regional Britain was then, and to some extent still is, manufacturing Britain.
Across the road at Great George street, the right hon. and learned Member for Surrey, East (Sir G. Howe) was doing his bit to destroy huge chunks of British manufacturing industry. As my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said, the right hon. and learned Gentleman increased VAT to 15 per cent. Some people forget that he also introduced a massive increase in the price of gas and electricity to British industry and removed what were in effect subsidies. The subsidies should have been removed eventually over a period, but it was done all in one year.
I had a private electric arc furnace steel works in my constituency. The Tory Government of 1981 managed to wipe out most of Britain's private steel-making capacity, certainly in special steels, with 15 per cent. VAT. high interest rates, a high pound and a massive increase in the price of energy, especially gas and electricity, on which those industries were dependent. Altogether, 25 per cent. of our manufacturing base was wiped out between 1980 and 1982 by the policies of the Conservative Government, who had no interest in manufacturing industry.
Why were the Government hostile to manfacturing industry? There were three reasons: first, because the strength of the trade union movement lay in manufacturing industry, so anything that weakened it was good and if it had to be weakened, so be it; secondly, they had contempt for regional assistance because the regions were the basis of manufacturing industry; thirdly, there was the influence of what is euphemistically described as the radical right—that collection of loonies, mad economists, mad theorists and third-rate financiers we see on television from time to time—who influenced policy so much in the past 12 years. They had no interest in manufacturing industry and no concern for the balance of payments. They believed in letting the market decide everything.
The trouble is that the market in Britain will always gravitate to service industries. We are not against service industries, property development or commercial development, but because of our banking and financial system, the bias has always been to service industries. Some attempt must be made to redraw the balance to manufacturing industry.
The right hon. Member for Blaby (Mr. Lawson) believed in what is called fiscal neutrality—removing all allowances and a lower rate of tax. That increased benefits to service industries, which did not have to spend money on investment, but had a deleterious effect on our manufacturing industry.
That is one reason for the decline in our balance of trade in the past four or five years, but the then Chancellor was not prepared to help manufacturing industry because it did not fit with the political aims of the Tory party. Manufacturing industry is now a small sector of our economy. The Tory hinterland—the south-east—is almost entirely dependent on "highly geared" service industries, which is a euphemism for them being up to their eyeballs in debt.
The property-owning democracy is up to its eyeballs in debt. High interest rates are damaging the hinterland of the Tory party, but apparently they are the only way of reducing inflation. In the next few years, it will be

interesting to see whether the south takes the same attitude to inflation as it did in the past. It was easy to preach against inflation and to say that the only way of reducing it was a recession, which largely did not affect the south of England. I think that the Chief Secretary realises that things are changing: the recession is affecting the south of England, and the fight against inflation is creating unemployment there. I wonder whether we shall hear the same cries against inflation as we heard in the past.
It was easy to talk about wanting to reduce inflation when the recession mainly affected the regions, but now the Government are extremely worried about rising unemployment in the south-east. That is why there will be electoral difficulties in the autumn, as there are now, and at the beginning of next year if the Prime Minister does not call an election until then.
The Government have shown that they are not interested in manufacturing industry. They will find every reason not to help it, but Britain will survive only with a strong manufacturing sector. Jobs in banking and the property sector will not increase in the next five years. Where will all the good people of the south-east who have been laid off find work? They will not find it in banking, finance, retail distribution, pensions or insurance. The boom in the City in the past 10 years will not be repeated.
The Government should change their attitudes, because the only way of reducing our balance of payments and the only way in which Britain can grow, live and pay its way again is through the manufacturing sector. Perhaps the Chief Secretary should rethink, and at least start tonight with the amendment.

Mr. Michael Spicer: I am sorry to have to disagree with the right hon. Member for Llanelli (Mr. Davies), for whom I have enormous admiration and respect. I remember debating the Development Land Tax Bill in 1976 with him night after night. In those days, he could at least recognise a philosophical divide when he saw one. There has been no nit-picking by Conservative Members, but there is a division on what makes proper investment work.
There is no question of Conservative Members disliking manufacturing industry. In the past 10 years, output in manufacturing industry has been rising and rising and recently reached a peak. Contrary to what the right hon. Gentleman suggested, because of the way in which we have geared incentives, manufacturing industry has been encouraged and Britain has been the recipient of vast foreign investment, notably in the automobile industry and other advanced industries. One need only drive up and down motorways to realise that manufacturing estates have been transformed in recent times.

Mrs. Beckett: The hon. Gentleman said, if I heard him correctly, that manufacturing output has been rising and rising under the Government. I am sorry to have to tell him that it fell dramatically in 1980 and did not recover from the figure that was inherited in 1979 until 1988. It increased in 1988, 1989 and 1990 but is falling again. That is not the same as saying that there has been a dramatic increase in manufacturing investment throughout that period.

Mr. Spicer: The hon. Lady will confirm that manufacturing output recently reached a peak. Of course there have been ups and downs and cycles, but under this Government it reached a peak. The issue is what makes


efficient investment that creates a return, which must relate to the marketplace and not to some policy on the tax system.
The amendment is classic Labour party dogma and seems extremely muddled. The hon. Member for Derby, South (Mrs. Beckett) tried to defend it and said that the fact that the amendment would increase corporation tax more than will the Bill is purely technical. We must accept that it is purely technical, but my right hon. and learned Friend the Chief Secretary was justified in saying that the amendment might be a taste of things to come.
6.30 pm
My problem when listening to Labour spokesmen on economic matters is that I find that what they say is utterly incredible. I do not believe what they say. I am prepared to accept and understand that they have a dogmatic position which we can oppose and debate. My problem is in assessing whether there is any meaning in what they say. Over the past few years Labour spokesmen have been extremely bad at putting their case across. Their policies do not add up—not just in the mathematical sense, but because there is no logic behind them.
There is an alternative way of looking at what the amendment would do. One can accept the point about the cost of capital and listen to what the Labour party says about it and about interest rates—nterest rates are a relevant alternative way of encouraging investment, which we all accept is needed—ut the Labour party's position on interest rates was originally determined in 1987–9. The Labour party talked about how the Government ran an overheated economy, yet when interest rates were low and when, in retrospect, there was a case for raising them and having a tighter monetary policy, the Labour party was pressing for lower interest rates. That must not be forgotten.
More recently, some of us have believed for some time that interest rates should be lower. The Labour party, far from recognising the relationship between exchange rate policy and interest rates, was pressing for and goading us into entry into the European exchange rate mechanism, which has been perhaps the major constraint on interest rate policy. The same people who were pressing for lower interest rates pressed for entry into the ERM, which has been a major constraint on the cost of capital—ne might even argue that it has been the factor in continuing the high underlying costs of investment. Therefore, they are the least able now to argue for lower interest rates and lower costs of capital as alternatives.
Anything that the Labour party says on macroeconomic policy is distinctly incredible and questionable. Nothing adds up, except when Labour Members come to the House on occasions such as this and propose the classic Labour dogmatic positions which, as my hon. Friends have said, have been debased and debunked for many years.
If one considers trade policy and the effect on our balance of payments, and if one considers investment and all those matters with which both sides of the House are concerned, one cannot ignore the cost of capital or interest rates.
What has struck me—was saying this even when I was a Minister last September—as been the Treasury's difficulty under all Governments for many years in

recognising the lags that exist. This involves not just the old analogy of the tanker taking a long time to change direction; it is much more complicated than that. The lags are complicated. It is not just a question of the lag between a change in interest rates and a change in confidence—I hope and pray that my right hon. and learned Friend the Chief Secretary is correct that confidence is now returning; there is a lag between a major change in interest rates and confidence. There is also a lag between a change in confidence and actual investment, and one between actual investment and employment. Then there is the effect of a change in employment on politics and voting intentions, which we, as politicians, cannot discount. Different people calculate that those lags stretch for long periods ahead. It has been calculated that some lags stretch two or three years ahead.
The amendment is nonsense. It is a typical Labour amendment, representative of the old-fashioned thinking in which Labour Members engage. It does not address the fundamental issue, which is the need both to reintroduce general incentives to investment and to lower the cost of capital which is vastly greater in this country than in Japan, West Germany or the United States. If we are anxious to be competitive, as we all are, my right hon. and learned Friend and his team are absolutely correct to head towards lower interest rates. I hope that the interest rate structure will be determined by the real interests of this economy and not by considerations which relate to the German economy, for example, to name but one.

Mr. Battle: We are entitled to ask the Government why they are so resistant to proposals to support the manufacturing base of our economy. Behind the generalised comments on our amendments lies a deep hostility, in some cases, even to analysing the economy into the manufacturing and service sectors and to considering what is happening within those different sectors. One hon. Member refused to acknowledge that there were any differentials between the sectors of the economy. There is a case for tilting the structure of the Budget towards supporting manufacturing industry rather than allowing it to continue to decline.
During the past 13 years the Government have practically consigned our manufacturing base to history. Not far from where I live a famous textile mill was refurbished and turned into the Armley Industrial museum. A working textile loom, industrial engineering and textile machinery can be seen there. The only experience of manufacturing that the children of the future will have will be in that industrial museum. My constituency was built on textiles, clothing and engineering, but employment in those industries and that economic base have been completely eroded.
Since the early 1980s, 2 million manufacturing jobs have been lost. That is the erosion that I am talking about. We were told that it was a slimming down to make manufacturing leaner and fitter. We even had the celebrated remark of Lord Young that the manufacturing base did not matter and the economy would boom if only more people would eat out. We know that we cannot run an economy simply on the service sector and eating out.
Even now manufacturing accounts for just over one fifth of total United Kingdom output. It is down from a third in the mid-1970s, yet the Confederation of British Industry now expects a further 300,000 jobs to be lost in


manufacturing by the end of 1992. Our balance of trade depends on manufacturing. Four fifths of United Kingdom exports are factory-made goods.
There is a catch. Ian Thompson, the chief economist at the Engineering Employers Federation, claims that a large part of the increase in exports over the past few years is represented by the assembly or repackaging of imported manufactured goods, particularly in high value areas, such as advanced electronic equipment. He says:
My contention is that the United Kingdom manufacturing sector will not be big enough to support the kind of expanding economy that we need in the 1990s.

Mr. Kenneth Hind: If the hon. Gentleman considers what people, particularly those at Bradford university and elsewhere, were saying 15 years ago about work practices, he will realise that they projected a shrinkage in manufacturing employment and an increase in service sector employment. That has come about. That prediction is taking place alongside the improvement in productivity. It was likely to take place, and it has nothing to do with Governments. It is related to automation and other such matters.

Mr. Battle: We were also told that manufacturing job losses would be replaced by service sector jobs. However, we find that those replacement jobs are part time, temporary and even lower paid. The myth is still perpetuated, however, that low pay is the cause of unemployment in areas of highest unemployment. Each week I return from the Ho use to my constituency and hear announcements of hundreds of redundancies in manufacturing firms there—GKN Axles in Kirkstall, Doncaster Monkbridge Steel Stockholdings, Pennine Castings and, last week, Howson Algraphy which announced 340 redundancies. That is the scale of the erosion of the manufacturing base.
People suggest that it is just the service sector in the south-east that has been affected. The fact is that the economy is being undermined everywhere, not just in the south-east. The Government's economic policies are making manufacturing in constituencies such as mine in the north practically anorexic. They are being starved to death. They are also being starved of investment by high interest rates. Furthermore, they are being starved of the training back-up that they need. Now they are being belted by the uniform business rate.
The CBI forecasts that the projected fall in manufacturing investment this year will continue. It forecasts that it will fall by a further 17 per cent., after a 5 per cent. decline last year. In his Budget statement the Chancellor said that investment would fall by 10 per cent. in 1991. Manufacturing order books are lower than they have been for 40 years. In that context, the Government ought to take seriously the plea that the manufacturing base should be supported. It should not perpetuate the shibboleth and myth of the past—that the service sector will save our economy.
Our amendment is a small measure that I hoped the Government would support. It would provide a lifeline to manufacturing industry. It would not damn it and consign it to history textbooks.

Mr. Quentin Davies: I find the amendment moved by the hon. Member for Derby, South (Mrs. Beckett) far more revealing of her own state of mind and that of the modern Labour party than she perhaps can

have imagined when she tabled it. It enshrines, in a particularly striking and transparent way, two of the more antique economic illusions to be found in the modern world. I am aware that they were nurtured in the bosom of the British Labour party for generations after they had been abandoned elsewhere in the western world. However, I thought that in its new, reformed guise the British Labour party would have abandoned them.
The first of those illusions is the belief that, somehow, manufacturing is more virtuous than any other form of economic activity. I seem to remember that there is a passage in Marshall's "Principles of Economics" about how pervasive but mistaken is the idea that, whereas the maker of furniture performs a socially useful function, the man who markets and distributes it does not. When that book was published in 1890 I imagine that many people were victims of that apparently seductive illusion, but that book which, as you know, Sir Paul, stands at the beginning of modern economic teaching, was published 101 years ago. Therefore, it is remarkable to find that members of the Opposition Front Bench in the House of Commons today are still perpetuating that illusion. I am sure that Marshall would have been extremely surprised had he ever reflected upon the fact that that might be the case.
Some forms of economic activity are more useful than others and provide a better return on capital employed. Some may add more value. Others—at particular stages, at least—may show a greater rate of growth than others. There is no correlation between those criteria and manufacturing. My hon. Friend the Member for Beaconsfield (Mr. Smith) has already referred to a number of service industries that have a very high added value attached to them and that have enjoyed much faster growth rates than many manufacturing sectors.
It is completely wrong, for example, to suppose that software is an activity that is less inherently economically viable than the production of hardware. The two are closely related, but at various times it may be that the software produces far greater value for society. I hope, therefore, that we can lay that myth to rest for the rest of the debate on the clause and for the remainder of the Committee proceedings.
The other illusion that, apparently, is still dear to the heart of the Labour party is that investment is an end in itself—that, somehow, it is an inherently virtuous activity that should be pursued simply for its own ends. Nothing could be more destructive or more damaging to good, sound economic policy than that illusion, attractive though I know it still is to many Labour Members.
One of the most fundamental economic decisions that a society collectively takes, whether consciously or not, relates to what portion of its current output should be invested, what proportion of the harvest should be set aside as seed corn and what proportion of it should be consumed. There is no point, however, in forgoing present consumption unless the return from the investment will be worth more than the consumption that is currently forgone, otherwise the welfare of that society will not be enhanced; it will be diminished. Over time, that society will be poorer, not wealthier.
If one wants to consider an example of how it is possible to impoverish a society by forced investment—by investment that yields a negative return, a return that is less than the value of the investment—one needs only to look at the examples in eastern Europe that have come to light so dramatically over the past year or two.

Mr. Hind: Does not my hon. Friend think that it is important to balance a consumer purchasing something, which maximises the investment and creates wealth, against the idea that the investment itself will benefit society? The Opposition would increase the amount of taxation that is levied upon the better off. Their argument is that investment should be increased. However, they would take away the very means of increasing investment, whether it be through savings, insurance policies or bank savings. They believe that consumers would spend more, but consumers would not have more money to spend because they would be paying more tax into the state's coffers. Their economic argument does not seem to stand up in any circumstances.

Mr. Davies: I agree entirely with my hon. Friend. I have at heart in my remarks—as I am sure do all hon. Members—the interests of society and the country as a whole. If a firm is induced by tax incentives to make an investment that does not, in real resource terms, yield a positive return, it may be compensated by the tax advantage that induced the firm to make the investment in the first place; but that compensation is at the expense of society as a whole. If one takes the aggregate of the resources available to society and looks at what is done with them, one finds that a proportion of them has been lost and thrown away. They have been put into what is called an investment, but the consequence of that investment is not the same resources being available for future consumption as would have been available if the investment had not taken place. They amount to less. That must be a madhouse.
It may be that the Opposition have not thought this through thoroughly. If they adopted the policy of trying to push firms into making investments that on commercial criteria, against a neutral tax system, they would not have made, they would steadily reduce the marginal return on investment. Once the marginal return on investment became negative, which would eventually happen, society would be greatly impoverished. Therefore, I urge the Opposition to turn to any good textbook that has been written since Marshall so that the future deliberations of our Committee can be relieved of some of these antique illusions.

Mr. Mellor: The attendance in the debate has been small but the speeches made in it have been of a high quality. We have had a number of frisky contributions. I shall restrict my speech because I sense an enthusiasm in the Committee to move on to other matters.
To make up for an oversight last week, when I should have said what I say now, may I say how pleased I am to see the hon. Member for Neath (Mr. Hain) here. He was an opponent of mine at two elections, and we had our disagreements. However, I wish him all good fortune and I hope that he will enjoy his time here. It says a lot for his diligence that he is sitting through debates on the Finance Bill. I am not sure whether one would recommend it as a good way to start.

Mrs. Llin Golding: It is a reward.

Mr. Mellor: I think that one would have demanded a recount if one had known that that was in store.
I particularly enjoyed the speech of the hon. Member for Berwick-upon-Tweed (Mr. Beith), as well as those

from a number of my right hon. and hon. Friends, particularly of my right hon. Friend the Member for Hertfordshire, North (Mr. Stewart). All referred to the threadbare nature of the amendment. It is clear that everyone agrees with clause 22, which reduces corporation tax. I am not sure how convincing anyone, apart from her most devoted supporters, found the attempt by the hon. Member for Derby, South (Mrs. Beckett) to add to the clause an ill-focused return to investment allowances. The proposal was put before us without any definition of what kind of investment the allowances would be given to, or of the period for which they would be given, or whether they would be retrospective, or how far in the future they would go.
Given the sensitivity of costing and fiscal proof, it was astonishing that the hon. Lady was unable to offer—perhaps she will in winding up—any estimate of how much all this will cost. Our estimate is that it will be £200 million. Notwithstanding what the amendment says, it is apparently not her intention that this will be obtained from corporation tax. It is an interesting figure floating around. I return to the point that the number of sources for increased taxation that the Labour party is ruling out makes it likely that the poor old chap on the standard rate of income tax will have to bear the brunt of these changes. It is unfortunate, to say the least, that having taken the trouble to table a 20-line amendment, the Opposition cannot be more precise on these points. As attention increasingly focuses on what they propose to do rather than on what we have done and are proposing to do, I doubt whether the comparison will be to their advantage. We could not afford to make proposals anything like as threadbare as these.
I also find misconceived the assumption that there is something especially good about investment in manufacturing that is not so good about investment in other commercial activities. Britain must have a strong manufacturing base and nothing that I say belittles that need. Apparent in a number of the speeches from the Opposition was a hankering to go back to the days of L. S. Lowry. The idea is that, now that Britain no longer has L. S. Lowry-type landscapes, we have lost something. I wonder whether that is the forward-looking policy that we should be hearing.
I have said before, but it bears repeating, that, increasingly, as the Opposition shed some of the neo-Trotskyism of the early 1980s, we are left with sad, old glimpses of the policies of Callaghan and Wilson. There is not much evidence of the Opposition coming to terms with the modern British economy. That was particularly evident in the disparaging observations about banks made by the right hon. Member for Llanelli (Mr. Davies).
What are we to say about the differentials between investments? I happen to have the figures for the size of the financial services sector. I recently had an engagement with part of that sector and it has stuck in my mind. The sector is responsible for 20 per cent. of our gross domestic product and 12 per cent. of employment. It is a buoyant sector in which employment has increased by 60 per cent. since 1980. It contributes £9 billion to our invisible earnings, but it is to be regarded as a kind of second-class activity, in comparison to manufacturing, which is to be the subject of tax breaks. These have been presented to the House in nothing more than an ill-focused attempt to curry favour with one or two sectors of industry that still look back to the old days of stock allowances and


investment allowances. However, most of industry, certainly as represented by its associations, has moved away from this and now recognises that, in the end, we want a competitive economy with low direct taxation rates, which leaves those who run industry free to make their decisions rather than having those decisions made for them, or distorted, by Whitehall. On that basis, I hope that the Committee will reject the amendment and, when it comes to it, endorse clause 22.

Mrs. Beckett: I can honestly say that this has been one of the most peculiar debates that it has ever been my privilege to attend. It is peculiar partly because of the extraordinary nit-picking way—my right hon. Friend the Member for Llanelli (Mr. Davies) was right—in which the Government have approached the wording of this modest amendment. It is designed to raise the issue of the choice, which would be open to any Government, between giving help and support to industry through cuts in the rate of tax or through something like investment allowances. I made it plain from the outset that this was the purpose of the amendment, and it is extraordinary that there should be so much concern about the wording of the amendment. I have not had the privilege of serving on a Committee with the Chief Secretary, but on the Committees on which I had the privilege of serving I found that the Government, on dozens of occasions, got the drafting of the Bill wrong. Despite the criticism, the Government do not seem to be able to find any defects in the wording of the amendment, which is odd.
As for the hon. Member for Berwick-upon-Tweed (Mr. Beith), I am not surprised that the Minister enjoyed his speech, but I shall scrutinise his amendments with the care that he devoted to scrutinising ours. As his amendments are nearly always defective or out of order, it was foolish of him to stray into this territory.

Mr. Mellor: I assure the hon. Lady, because I am only too well aware of the technical defects of drafting—I dare say that I shall have to confess to a few upstairs—that that was not my point. My point, and that of the hon. Member for Berwick-upon-Tweed, was that I could not understand why the amendment applied only to manufacturing and not to other forms of investment and that I wanted to know who it covered and how much it would cost. These are points of substance, not technical points.

Mrs. Beckett: I am about to address these points. I was dealing first with the technical points made by the Minister and the hon. Member for Berwick-upon-Tweed, among others. These are cash flow measures, not net changes from the point of view of spending over a period of years.
The Chief Secretary put his finger on the most important issue that has been raised—whether or not greater priority should be given to investment in the manufacturing sector. The Chief Secretary chided the Opposition and asked why we considered the manufacturing sector to be so important, and why we did not encourage all kinds of investment, no matter in what sector it is made. I am prepared to admit that there is more worth in investment in manufacturing industry, making goods that we can sell elsewhere to earn our living, than in a few more car parks and casinos. If the Government do not think that such investment is preferable—judging from what they have said, they plainly do not—I am delighted to get that on the record.

Mr. Quentin Davies: Will the hon. Lady give way?

Mrs. Beckett: No, I do not have time.
In his opening speech, the Chief Secretary talked about how wonderful it was that corporation tax was lower in this country than in Germany, France or Italy and that the tax burden on companies was lower here than in Germany, France, Italy and other countries.
The total tax burden on companies here is lower than that in France, lower than that in Germany and lower than that in Italy. Anyone listening to the right hon. and learned Gentleman would have thought that we had a more successful record than Germany, France and Italy. Anyone would have thought that, given this wonderful incentive, companies here had invested more and that, in some way, this refuted the appalling and frightening statistics showing our decline in manufacturing output, the decline in our share of manufacturing trade and the other very considerable difficulties that we face.
7 pm
In his response to an intervention from my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith), the Chief Secretary talked about investment having fallen off from a historic high. For a moment I thought that he, like my hon. Friend and, indeed, myself, was referring to the levels that had been inherited from a Labour Government in 1979. If he was, clearly he realised his mistake, as he hastily began to talk, instead, about the peak of investment in 1988–89. There is no doubt that, by 1988–89, investment had returned to the levels of 1979, just as, unfortunately, investment is now going back to the levels of the 1960s. The Chief Secretary referred to an investment level of about £11 billion—I think that the reference was to last year—but he will know that the same statistics show that the level is expected to fall this year. The figure may go below £9 billion; it will certainly go below £10 billion. That is the situation with which we are seeking to cope and our amendments are intended, in a minor way, to rectify it.
From the rate of corporation tax, the Chief Secretary turned to other rates of taxation and to proposals that the shadow Chancellor discussed this weekend. I assume that his reference to a tax level of 59p in the pound related to our proposal for the very top slice of income—not the level at which the current 40p rate applies. He mentioned our proposal to lift the ceiling on national insurance contributions. This would bring our tax level, first of all, back to the level of income tax alone two to three years ago, which is very similar to that being charged in competitor countries. Despite that fact, the Chief Secretary suggested that what we propose might lead to a brain drain. He does not seem to be aware of the fact that we have a brain drain already. We are losing some of the most intelligent and well-educated people—the people whose inventions and discoveries form the basis of so much manufacturing prosperity. Thanks to cuts in the Government's support for research and development, and to their overall attitude to investment, those people are simply unable to work here. Often with the utmost reluctance, they take their brains and their ideas—together with the prosperity that can result from their patents and inventions—to competitor countries.
The Chief Secretary, once challenged, was gracious enough to acknowledge that, under the present Government, the tax burden on the average family has


risen. It would have been only fair to point out that, for families on average or below-average earnings, the benefits derived from the income tax cuts have been almost exactly offset by increases in national insurance contributions. Indeed, they have been extinguished by value added tax increases—even those before the most recent one—and by the poll tax, for which the Government refuse to give us a breakdown in terms of its impact on the incomes of people on average or below-average earnings.
The Chief Secretary's remarks on those points were most interesting. He seemed to imply some deception on our part, but we have made our taxation proposals very plain, which is more than can be said for the Government. The Prime Minister—then Chancellor of the Exchequer—spoke last year to the Welsh Tories at their party conference. No doubt it was a small gathering. In that speech he attacked some of Labour's taxation proposals. For example, he said:
They intend to meddle with mortgage interest relief
—in other words, not to allow mortgage interest relief at the top rate of tax. As long ago as July, the Prime Minister was very upset about that. Although we had clearly told the country what we proposed, the Government attacked us. Then, of course, they put it in their own Budget. On the same occasion, the right hon. Gentleman attacked the Labour party for its intention to freeze the married couple's allowance. That, too, is in this Budget—again without notice from the Conservative party. If the Chief Secretary wants to use this occasion to give us a categorical undertaking that at no point will the Government follow through the logic of their decision to charge employers' national insurance contributions on the full range of earnings, and that they will never lift the ceiling on earnings on which employees pay national insurance contributions, I shall be happy to give way. If he is not prepared to do so, we must all recognise the likelihood that the Government will follow through the logic of their decision. Just as with the married couple's allowance, and with mortgage interest relief at 40p in the pound, they do not propose to tell the electorate in advance of their decisions. Yet they complain about our proposals.
As was identified by the Chief Secretary in his closing remarks, the main point is whether and how we should give support to industry. Should assistance be given to all by way of cuts in the rate of corporation tax, or should there be a specifically targeted incentive for manufacturing? We certainly prefer the latter. The Chief Secretary drew attention to some costings that he suggested might be possible in respect of the proposal for investment allowances. I am happy to repeat something that I made quite plain in my opening remarks. The Government were prepared to forgo quantifiable amounts of revenue by allowing cuts in tax rates. We would have used that revenue to help manufacturing industry through investment allowances. Let me quote what the Institute for Fiscal Studies has said about that choice:
The current tax system acts as a disincentive to investment.
The CBI said that members still believe that investment in allowances for depreciation of plant and machinery is the most important priority. This is precisely the proposal that is contained in our amendment.
That brings me to what, apart from what one could almost describe as the Government's attacks on manufacturing industry, is the most extraordinary feature

of the debate. The Chief Secretary rose maginificently above one of the points that I made in my earlier remarks—that this was the proposal of the CBI and others. The hon. Member for Worcestershire, South (Mr. Spicer) said that this was an incredible proposal which showed the Labour party's old-fashioned thinking. The hon. Member for Stamford and Spalding (Mr. Davies) referred to it as an antique illusion. The Chief Secretary said that such a proposal was clung to by the members of a disaffected section of the business community, of whom there were not all that many. Those were fascinating remarks from Conservative Members. I propose to send copies of them to the Engineering Employers Federation, the CBI and many other representatives of manufacturing industry, all of whom, as Conservative Members know are calling for precisely those steps.
There could be no better example of the arrogance of the Government than the way in which, yet again, they claim to know what industry wants better than does industry itself. They do not listen to anyone but themselves, and they have made it plain that they never will. That is one of the reasons why they are on their way out, and in the next Budget we shall be able to introduce measures of this kind.

Question put, That the amendment be made:—

The Committee divided: Ayes 169, Noes 264.

Division No. 136]
[7.9 pm


AYES


Abbott, Ms Diane
Doran, Frank


Adams, Mrs Irene (Paisley, N.)
Duffy, A. E. P.


Allen, Graham
Dunnachie, Jimmy


Archer, Rt Hon Peter
Dunwoody, Hon Mrs Gwyneth


Armstrong, Hilary
Eadie, Alexander


Ashton, Joe
Evans, John (St Helens N)


Banks, Tony (Newham NW)
Ewing, Harry (Falkirk E)


Barnes, Harry (Derbyshire NE)
Fatchett, Derek


Barron, Kevin
Faulds, Andrew


Battle, John
Fisher, Mark


Beckett, Margaret
Flannery, Martin


Bell, Stuart
Flynn, Paul


Benn, Rt Hon Tony
Foster, Derek


Bennett, A. F. (D'nt'n &amp; R'dish)
Foulkes, George


Bermingham, Gerald
Fraser, John


Blair, Tony
Fyfe, Maria


Blunkett, David
Galloway, George


Boyes, Roland
Garrett, John (Norwich South)


Bray, Dr Jeremy
Godman, Dr Norman A.


Brown, Gordon (D'mline E)
Golding, Mrs Llin


Brown, Nicholas (Newcastle E)
Gordon, Mildred


Brown, Ron (Edinburgh Leith)
Gould, Bryan


Buckley, George J.
Graham, Thomas


Caborn, Richard
Grant, Bernie (Tottenham)


Callaghan, Jim
Griffiths, Nigel (Edinburgh S)


Campbell, Ron (Blyth Valley)
Griffiths, Win (Bridgend)


Campbell-Savours, D. N.
Grocott, Bruce


Canavan, Dennis
Hain, Peter


Clark, Dr David (S Shields)
Hardy, Peter


Clarke, Tom (Monklands W)
Heal, Mrs Sylvia


Clelland, David
Healey, Rt Hon Denis


Clwyd, Mrs Ann
Hinchliffe, David


Cohen, Harry
Hoey, Ms Kate (Vauxhall)


Corbett, Robin
Hogg, N. (C'nauld &amp; Kilsyth)


Corbyn, Jeremy
Home Robertson, John


Cousins, Jim
Hood, Jimmy


Crowther, Stan
Howarth, George (Knowsley N)


Cryer, Bob
Howell, Rt Hon D. (S'heath)


Cunliffe, Lawrence
Hoyle, Doug


Cunningham, Dr John
Hughes, John (Coventry NE)


Darling, Alistair
Hughes, Robert (Aberdeen N)


Davies, Rt Hon Denzil (Llanelli)
Ingram, Adam


Davis, Terry (B'ham Hodge H'l)
Jones, Martyn (Clwyd S W)


Dewar, Donald
Kaufman, Rt Hon Gerald


Dixon, Don
Leadbitter, Ted


Dobson, Frank
Leighton, Ron






Lestor, Joan (Eccles)
Rees, Rt Hon Merlyn


Lewis, Terry
Reid, Dr John


Lloyd, Tony (Stretford)
Richardson, Jo


Lofthouse, Geoffrey
Robertson, George


Loyden, Eddie
Robinson, Geoffrey


McAllion, John
Rogers, Allan


McAvoy, Thomas
Rooker, Jeff


McCartney, Ian
Ross, Ernie (Dundee W)


Macdonald, Calum A.
Salmond, Alex


McFall, John
Sheerman, Barry


McKay, Allen (Barnsley West)
Sheldon, Rt Hon Robert


McKelvey, William
Shore, Rt Hon Peter


McLeish, Henry
Short, Clare


McMaster, Gordon
Skinner, Dennis


Madden, Max
Smith, Andrew (Oxford E)


Mahon, Mrs Alice
Smith, C. (Isl'ton &amp; F'bury)


Marshall, David (Shettleston)
Smith, Rt Hon J. (Monk'ds E)


Marshall, Jim (Leicester S)
Snape, Peter


Martin, Michael J. (Springburn)
Soley, Clive


Martlew, Eric
Steinberg, Gerry


Maxton, John
Stott, Roger


Meacher, Michael
Strang, Gavin


Michie, Bill (Sheffield Heeley)
Straw, Jack


Mitchell, Austin (G't Grimsby)
Taylor, Mrs Ann (Dewsbury)


Moonie, Dr Lewis
Thompson, Jack (Wansbeck)


Morgan, Rhodri
Warden, Gareth (Gower)


Morris, Rt Hon A. (W'shawe)
Wareing, Robert N.


Mullin, Chris
Welsh, Michael (Doncaster N)


Nellist, Dave
Wigley, Dafydd


O'Hara, Edward
Williams, Rt Hon Alan


Orme, Rt Hon Stanley
Wilson, Brian


Parry, Robert
Winnick, David


Patchett, Terry
Wise, Mrs Audrey


Pendry, Tom
Worthington, Tony


Powell, Ray (Ogmore)
Wray, Jimmy


Prescott, John
Young, David (Bolton SE)


Primarolo, Dawn



Quin, Ms Joyce
Tellers for the Ayes:


Radice, Giles
Mr. Frank Haynes and Mr. Ken Eastham.


Randall, Stuart



Redmond, Martin





NOES


Adley, Robert
Butler, Chris


Aitken, Jonathan
Campbell, Menzies (Fife NE)


Alexander, Richard
Carlile, Alex (Mont'g)


Alison, Rt Hon Michael
Carlisle, John, (Luton N)


Allason, Rupert
Carlisle, Kenneth (Lincoln)


Amess, David
Carrington, Matthew


Amos, Alan
Carttiss, Michael


Arbuthnot, James
Cash, William


Arnold, Jacques (Gravesham)
Channon, Rt Hon Paul


Arnold, Sir Thomas
Chapman, Sydney


Ashby, David
Chope, Christopher


Aspinwall, Jack
Churchill, Mr


Atkins, Robert
Clark, Rt Hon Alan (Plymouth)


Atkinson, David
Clark, Rt Hon Sir William


Baker, Nicholas (Dorset N)
Clarke, Rt Hon K. (Rushclitfe)


Baldry, Tony
Coombs, Anthony (Wyre F'rest)


Banks, Robert (Harrogate)
Coombs, Simon (Swindon)


Beith, A. J.
Cope, Rt Hon John


Bellingham, Henry
Cormack, Patrick


Bellotti, David
Couchman, James


Bennett, Nicholas (Pembroke)
Cran, James


Bevan, David Gilroy
Critchley, Julian 


Biffen, Rt Hon John
Currie, Mrs Edwina


Blackburn, Dr John G.
Davies, Q. (Stamf'd &amp; Spald'g)


Boscawen, Hon Robert
Davis, David (Boothferry)


Boswell, Tim
Day, Stephen


Bottomley, Mrs Virginia
Devlin, Tim


Bowden, A. (Brighton K'pto'n)
Dickens, Geoffrey


Bowden, Gerald (Dulwlch)
Dicks, Terry


Braine, Rt Hon Sir Bernard
Dorrell, Stephen


Brazier, Julian
Douglas-Hamilton, Lord James


Bright, Graham
Dover, Den


Brown, Michael (Brigg &amp; Cl't's)
Dunn, Bob


Bruce, Malcolm (Gordon)
Durant, Sir Anthony


Budgen, Nicholas
Eggar, Tim


Burns, Simon
Emery, Sir Peter


Burt, Alistair
Evans, David (Welwyn Hatf'd)





Evennett, David
McNair-Wilson, Sir Patrick


Fallon, Michael
Madel, David


Favell, Tony
Malins, Humfrey


Fearn, Ronald
Mans, Keith


Field, Barry (Isle of Wight)
Maples, John


Fishburn, John Dudley
Marland, Paul


Fookes, Dame Janet
Martin, David (Portsmouth S)


Forman, Nigel
Mates, Michael


Fox, Sir Marcus
Maude, Hon Francis


Franks, Cecil
Maxwell-Hyslop, Robin


Freeman, Roger
Mellor, Rt Hon David


French, Douglas
Meyer, Sir Anthony


Fry, Peter
Michie, Mrs Ray (Arg'l &amp; Bute)


Gale, Roger
Miller, Sir Hal


Gardiner, Sir George
Mills, Iain


Garel-Jones, Tristan
Miscampbell, Norman


Gill, Christopher
Mitchell, Andrew (Gedling)


Glyn, Dr Sir Alan
Mitchell, Sir David


Goodhart, Sir Philip
Moate, Roger


Goodlad, Alastair
Montgomery, Sir Fergus


Goodson-Wickes, Dr Charles
Morris, M (N'hampton S)


Gorman, Mrs Teresa
Morrison, Sir Charles


Grant, Sir Anthony (CambsSW)
Morrison, Rt Hon Sir Peter


Greenway, Harry (Eating N)
Moss, Malcolm


Greenway, John (Ryedale)
Moynihan, Hon Colin


Griffiths, Peter (Portsmouth N)
Mudd, David


Ground, Patrick
Neale, Sir Gerrard


Grylls, Michael
Needham, Richard


Hague, William
Nelson, Anthony


Hampson, Dr Keith
Neubert, Sir Michael


Hannam, John
Newton, Rt Hon Tony


Hargreaves, A. (B'ham H'll Gr')
Nicholls, Patrick


Harris, David
Nicholson, David (Taunton)


Haselhurst, Alan
Norris, Steve


Hayes, Jerry
Onslow, Rt Hon Cranley


Hayhoe, Rt Hon Sir Barney
Oppenheim, Phillip


Heathcoat-Amory, David
Paice, James


Hicks, Mrs Maureen (Wolv' NE)
Patnick, Irvine


Higgins, Rt Hon Terence L.
Patten, Rt Hon Chris (Bath)


Hind, Kenneth
Patten, Rt Hon John


Hordern, Sir Peter
Pawsey, James


Howarth, Alan (Strat'd-on-A)
Peacock, Mrs Elizabeth


Howarth, G. (Cannock &amp; B'wd)
Porter, Barry (Wirral S)


Howe, Rt Hon Sir Geoffrey
Porter, David (Waveney)


Howell, Rt Hon David (G'dford)
Powell, William (Corby)


Hughes, Robert G. (Harrow W)
Price, Sir David


Hughes, Simon (Southwark)
Raffan, Keith


Hunt, Sir John (Ravensbourne)
Raison, Rt Hon Sir Timothy


Hunter, Andrew
Rathbone, Tim


Irvine, Michael
Redwood, John


Jackson, Robert
Rhodes James, Robert


Janman, Tim
Riddick, Graham


Jessel, Toby
Ridsdale, Sir Julian


Johnson Smith, Sir Geoffrey
Rost, Peter


Jones, Robert B (Herts W)
Ryder, Rt Hon Richard


Jopling, Rt Hon Michael
Sackville, Hon Tom


Kellett-Bowman, Dame Elaine
Shaw, David (Dover)


King, Roger (B'ham N'thfield)
Shaw, Sir Giles (Pudsey)


Kirkwood, Archy
Shelton, Sir William


Knapman, Roger
Shephard, Mrs G. (Norfolk SW)


Knight, Greg (Derby North)
Shepherd, Colin (Hereford)


Knight, Dame Jill (Edgbaston)
Shersby, Michael


Knowles, Michael
Sims, Roger


Latham, Michael
Skeet, Sir Trevor


Lawrence, Ivan
Smith, Tim (Beaconsfield)


Lee, John (Pendle)
Speed, Keith


Leigh, Edward (Gainsbor'gh)
Spicer, Sir Jim (Dorset W)


Lennox-Boyd, Hon Mark
Spicer, Michael (S Worcs)


Lester, Jim (Broxtowe)
Squire, Robin


Lightbown, David
Stanbrook, Ivor


Lilley, Rt Hon Peter
Steel, Rt Hon Sir David


Lloyd, Peter (Fareham)
Steen, Anthony


Lord, Michael
Stern, Michael


Luce, Rt Hon Sir Richard
Stevens, Lewis


McCrindle, Sir Robert
Stewart, Allan (Eastwood)


MacGregor, Rt Hon John
Stewart, Andy (Sherwood)


MacKay, Andrew (E Berkshire)
Stewart, Rt Hon Ian (Herts N)


Maclean, David
Taylor, Ian (Esher)


Maclennan, Robert
Taylor, John M (Solihull)


McLoughlin, Patrick
Taylor, Matthew (Truro)






Taylor, Teddy (S'end E)
Wells, Bowen


Temple-Morris, Peter
Wheeler, Sir John


Thompson, D. (Calder Valley)
Widdecombe, Ann


Thompson, Patrick (Norwich N)
Wiggin, Jerry


Thurnham, Peter
Wilkinson, John


Townend, John (Bridlington)
Wilshire, David


Tracey, Richard
Winterton, Mrs Ann


Tredinnick, David
Winterton, Nicholas


Twinn, Dr Ian
Wolfson, Mark


Vaughan, Sir Gerard
Woodcock, Dr. Mike


Viggers, Peter
Yeo, Tim


Walden, George
Young, Sir George (Acton)


Waller, Gary
Younger, Rt Hon George


Walters, Sir Dennis



Wardle, Charles (Bexhill)
Tellers for the Noes:


Warren, Kenneth
Mr. Timothy Wood and Mr. Neil Hamilton.


Watts, John

Question accordingly negatived.

Clause 22 ordered to stand part of the Bill.

Clause 77

NON-RESIDENT SETTLEMENTS WHERE SETTLOR HAS AN INTEREST

Question proposed, That the clause stand part of the Bill.

The Financial Secretary to the Treasury (Mr. Francis Maude): Clause 77 is one of several clauses which give effect to the Chancellor's statement in the Budget that we would take steps on the tax treatment of non-resident trusts, a matter which has caused some concern. The clause sets out one of the three main components of the proposals—the requirement that the settlor of a trust caught by the provisions of the Finance Bill will be required to pay capital gains tax on the gains released by the non-resident trust as they accrue.
The other components of the proposals are in other clauses which are complementary. It is a packet, each part of which complements the others. The second element is that, in future, there will be what has been described as an exit charge on a resident trust. A trust at present resident will suffer capital gains tax on capital gains which have accrued up to the time of the trust moving offshore.
The third element is that for those trusts which are not otherwise caught and on which gains are not payable at the time that they accrue capital gains tax will be payable when the capital is remitted to this country. In those cases there will be a supplementary charge, effectively an interest charge, to reflect the deferment of capital gains tax from the time when the capital gains accrued in the non-resident trust. When the capital is remitted to the beneficiary here, there will be a charge which reflects the deferment of the tax.
It is a sensible, fair package of proposals to remedy a possibility of tax avoidance. I commend the clause to the Committee.

Mr. Nicholas Brown: I thank the Financial Secretary to the Treasury for his introduction to clause 77 and to the matters that relate to it, which we will explore in more detail in Committee.
The clause and those related to it represent the fruits of the labours of the Government's working group on tax avoidance which was set up in 1988 to deal with a problem that the Government created in 1981. Last year, the Labour party drew attention to the widespread use of offshore trusts as a tax avoidance device. We put forward

proposals to curtail the use of those devices, but our suggestions were rejected by the Treasury team during the passage of the Finance Bill 1990.
In Committee last year, I said:
Other major vehicles of tax avoidance remain. Offshore trusts are still an abused vehicle for imaginative tax planning.
The then Economic Secretary, now, I guess, promoted, the right hon. Member for Mid-Norfolk (Mr. Ryder), replied:
The hon. Member for Newcastle upon Tyne, East identified a problem about loopholes. They have not been used and the Inland Revenue does not know of any avoidance to date."—[Official Report, Standing Committee E, 12 June 1990; c. 183 and 184.]
That is what he was required to say when representing the Government's view last year.
The position has changed substantially. Obviously it has not changed at any prompting of mine. I can only assume that it has changed at the prompting of The Sunday Times, probably a more authoritative voice with the Conservative party than mine in spite of all my efforts to the contrary. The hon. Member for Beaconsfield (Mr. Smith) shakes his head. I take that as a tremendous compliment; I am sure that it was intended as such.
Last year, on 21 October, The Sunday Times drew attention to the same issue on its front page under the headline
Super rich in massive tax dodge".
We can see that the newspaper is owned by the same people as those who own The Sun. The Sunday Times Insight team gave specific examples, one of which I should like to summarise as an illustration of the problem.
When Mr. Richard Branson, head of the Virgin airline and entertainment empire, sold 25 per cent. of his record company, the Virgin music group, to a Japanese group, Fujisankei Communications, in 1989, more than 75 per cent. of the ultimate number of the shares had previously been transferred by Branson into five Channel islands trusts.
In spite of him being the settlor and the discretionary beneficiary of all five offshore trusts, he was able to avoid a potential tax bill of £18·4 million, 40 per cent. of the capital gain of £46 million. The money was then reinvested in Virgin companies overseas. Branson's lawyers argued that since all five trusts were controlled by Morgan Grenfell in Guernsey and Coopers and Lybrand Deloitte in the Channel islands, the capital gains had been avoided because none of the profits were Branson's, he having distanced himself sufficiently from the assets so as to avoid taxation.
Hopefully such arrangements will no longer work as tax avoidance devices when clause 77 and its allied clauses and schedules are law. It is not our intention to impede the progress of these parts of the Finance Bill, which are designed as anti-avoidance measures. However, we shall want to examine the detail in Standing Committee.
7.30 pm
I want to give some examples of the sort of scam that we want to be caught by the new legislation. At present it is possible for those with a business to sell to transfer that business into an offshore trust and, under section 126 of the Capital Gains Tax Act 1979, the trustees could sell the business without any charge to United Kingdom tax. The trustees could then reinvest the money in the original owner's business, perhaps remitting the money back to the United Kingdom in the form of a loan. That sort of tax avoidance is legal, although hard to justify morally.


Indeed, the very existence of this Bill, from the post-Thatcherite Conservative Government, suggests that the Government have given up trying morally to justify it.
The example that I have just cited parallels the Richard Branson case that was quoted in The Sunday Times. A variation on that theme would be to transfer the asset for sale into a United Kingdom trust prior to disposing of it and then to move the trust offshore. The trustees could then proceed to sell it without any charge to tax. It is clear that the real relationship rather than the contrived relationship between the trustees and the settlor is of crucial importance.
It is useful to note just who the trustees are in the Branson example. Gone are the Rossminster days, when the Keith No. 1 trust, of which Mr. Keith Tucker was the trustee, played its part in the tax avoidance schemes of his brother, Mr. Roy Tucker. Today, the trustees are such firms as Morgan Grenfell and Coopers and Lybrand Deloitte—both of which Mr. Branson trusted with his wealth in the Channel islands. According to The Sunday Times, Touche Ross promotes a complete offshore trust package for £2,000, plus an annual fee of £3,000. Offshore trusts are now part and parcel of the mainstream tax planners' armoury.
Of course, there are reasons other than that of tax avoidance for setting up an offshore trust, such as the need to preserve commercial confidentiality. However, it is impossible to avoid the conclusion that the overwhelming majority of such arrangements have been entered into solely for the purpose of tax avoidance. A further 3,000 such trusts were notified to the Inland Revenue last year, but that probably represents only a small percentage of the number that have been established.
The arrangements work well enough to avoid capital gains tax bills, as they work well enough to avoid inheritance tax. Trusts cannot die. Offshore trusts can also have income tax advantages, provided that the senior and his spouse are not possible beneficiaries. An example would be a trust for children and grandchildren. In case anyone doubts that that works, I can tell him that, as far back as 1979, the House of Lords gave a ruling in a famous case involving the Vestey family. That case aroused a great deal of indignation.

Mr. Tim Smith: As the hon. Gentleman knows, one reason why trusts became more attractive after 1988 was that the rate of capital gains tax was increased from 30 per cent. to 40 per cent. That automatically made them more effective because more tax could be avoided. It is the Government's policy to link the top rate of income tax with the capital gains tax rate. Does the Labour party propose to raise capital gains tax to 50 per cent.?

Mr. Brown: We have no plans to increase capital gains tax. I am grateful to the hon. Gentleman for enabling me to make that quite clear. I know that the hon. Gentleman would not do it, but I hope that he will encourage his right hon. and hon. Friends not to misrepresent the Labour party's position. I repeat that we have no plans to increase capital gains tax.

Mr. James Arbuthnot: Does that mean that the Labour party will break the link between capital gains tax and income tax?

The Temporary Chairman (Mr. David Knox): Order. That is rather wide of the clause under discussion.

Mr. Brown: I accept that, Mr. Knox, but I do not want to deny the hon. Gentleman an answer. I think that the implications of what I have said are clear. The hon. Gentleman has correctly followed the point to its logical conclusion.

Mr. Julian Brazier: Answer the question.

Mr. Brown: I have just done so.
Clause 77 introduces the rule that, for certain categories of offshore trusts, capital gains realised by the trustees are to be treated as realised by the person who created the trust or by its beneficiaries, provided that the settlor, his spouse or any of their children or any company in any way associated with them can in any way, at any time benefit from the capital or the income of the trust. That is comprehensive. The Government have met the first of the points that we put to them in our debates last year and the year before.
I hope that in fairness, Mr. Knox, you will allow me in passing to refer, as did the Financial Secretary, to the fact that clause 71 introduces an exit charge if an existing United Kingdom trust becomes non-resident. We specifically called for that during our debates on the Finance Bill last year. The Government's adoption of our request is most welcome. I note that the Financial Secretary is gracefully accepting my thanks; roll on the Standing Committee stage, with all its long nights. Clause 71 is to be welcomed.
The second aspect of clause 77 is that it stops a settlor hiding behind an existing offshore trust by putting new assets into it that can share the favourable capital gains tax treatment that the trust already enjoys. Such a prohibition is necessary, and I am pleased that the Government have done that. However, the Government have not drawn the clause more widely to encompass offshore trusts where the beneficiaries do not include the settlor, his spouse, any of their children, or any company associated with them. I am not sure why the Government have adopted that approach, but it is something that we can explore in Standing Committee. The Financial Secretary may say that there are not many such trusts in existence. If he does, the suspicions that we have harboured about tax avoidance will be shown to have been well founded. If there is another explanation, I look forward to hearing it.
That brings me to the mystery of what we shall probably end up calling, "The Mystery of the Missing Decimal Point". The Sunday Times article referred to billions of pounds, or at least to £1 billion—[Interruption.] The Sunday Times referred to £1 billion; others have referred to substantially higher figures.

Mr. Maude: Only the hon. Gentleman.

Mr. Brown: The Financial Secretary is being mischievous. It is not only me.

Mr. Maude: We are puzzled about the figure of £1 billion that has found its way into the Labour party canon as one of those pots of gold that are just lying around waiting to be raided to pay for its spending. The Sunday Times referred to a sum of up to £1 billion. I am not aware of any other estimates that show anything like that amount. The actual amount is a yield in a full year of £10 million, and also preventing indirectly a revenue loss of £100 million. Those figures are very much more modest


than those suggested by the Labour party, although the proposals in the Bill are considerably more draconian than anything that the Labour party suggested last year.

Mr. Brown: The point has found its way into the Labour party canon because it is such a good shot. I am not sure how the Financial Secretary arrives at his figures for the amount that has been avoided through offshore trusts over the past decade. I should welcome a year-by-year breakdown of the estimated sums that have been forgone. The Sunday Times suggested £1 billion. The Chancellor said in his Budget speech, referring to this year alone:
I therefore propose to introduce measures to counter this tax avoidance"—
he was referring to offshore trusts—
and to prevent a revenue loss of up to £100 million in a full year."—[Official Report, 19 March 1991; Vol. 188, c. 134.]
Assuming that the
up to £100 million in a full year
is par for the course, the Chancellor clearly thinks that the figure is closer to £1 billion than to £10 million—this is where the missing decimal point comes in—that is shown in the Red Book.
I must thank the Financial Secretary for writing to me about the matter, attempting to explain the difference between the £100 million to which the Chancellor dramatically referred in his Budget speech and the rather more modest £10 million that the Government's Treasury team are hoping to rake in as a result of the change. His answer is not convincing, but I understand the semantic exercise in which he is trying to indulge in justifying it. The truth of the matter is that a substantial sum of money that should have accrued to the Exchequer has been forgone with the result that the tax burden on the rest of us has been increased accordingly.
The Government need to take two further actions to convince us that they are serious about tackling unfair avoidance by the wealthy. The first is adequately to resource the Inland Revenue, particularly its specialist officers, so that more attention can be focused on these issues. When we say that, the Conservative party accuses us of planning more public expenditure on tax inspectors, as if that were a damning thing. But it is our belief—and the evidence is there to sustain it in the work of the Treasury and Civil Service Select Committee as well as in answers to parliamentary questions tabled by the Opposition—that a little extra investment may reap substantial rewards. Certainly we think that it would be more fruitful to explore that area than to spend the money hounding poor people on social security.
Secondly, we believe that we need to co-operate with our first world trading partners. The hon. Member for Beaconsfield (Mr. Smith) will have heard me say that before. I know that the point is controversial on the Government Benches, but we believe that we need to co-operate in a positive way with our first world trading partners steadily and collectively to block these tax avoidance devices so that at least one nation state collects tax when it would otherwise be due. It will be a long slow business, but I would rather see the British Government moving it along than kicking and screaming all the way.
Finally, I want to ask a question and then answer it. Why are we in this position in the first place? Why is clause 77 necessary? The answer goes back to the deeds of the

Conservative Government—I suppose that it is still legitimate to refer to it as this Conservative Government—in 1981 when they introduced section 80 of the Finance Act. That device was the work of the noble Lord Rees who was then Chief Secretary to the Treasury and a notable expert on tax law. Before becoming a Minister he advised on tax avoidance schemes, in the notorious Rossminster affair among others. In short, he knew what he was doing. The Opposition and the national press have repeatedly drawn the Government's attention to the loophole, but it has taken 10 years and a change of leader for the Conservative party to respond. Last year, the Economic Secretary was not even allowed to acknowledge that there was a problem.

Mr. Maude: Apart from last year when there was a fleeting reference of about half a sentence in a debate on the Finance Bill, when else in the past 10 years have the Opposition drawn attention to the problem?

Mr. Brown: I have made a number of speeches on the subject of tax avoidance since I was appointed to the Opposition Treasury team in 1987 and I have specifically referred to the issue of offshore trusts. But to give credit where it is due, the issue attracted our attention when we all obtained copies of Mr. Nigel Tutt's book entitled "The History of Tax Avoidance" which has provided us with an interesting guide through the byways of some of these issues and from which we have obtained part of our agenda. The hon. Member for Beaconsfield keenly follows these matters and I see him nodding and smiling. He will recall that last year I presented the Economic Secretary with a courtesy copy of the book in order to help him in his own consideration of these matters. Instead, all he got was promotion. I do not know whether reading the book helped him or not, but I hope it did.
7.45 pm
The Opposition's bone of contention with the Government is not that they are doing what they are now—that is acceptable to us; we have been calling for it. It is that it has taken the Government 10 years to get around to doing it and in that time £1 billion—I will not quarrel with the Financial Secretary over billion or billions—£1 billion worth of revenue has been lost to the Exchequer. It logically follows that that increases the burden placed on the shoulders of our fellow citizens.
In debates such as this it is important to remember that some of our fellow citizens are poorly remunerated. The other side of the coin is that 3,700,000 of our fellow citizens earn less than £5,500 per year. There are no offshore trusts to help them; no chance for them to avoid their share of the tax burden, most of which is given not through direct taxation but through indirect taxation. The unfairness of their position when compared with the position of wealthy people, such as Mr. Richard Branson and Lady Porter, rightly arouses indignation among Opposition Members, and I think that the Government will find that it arouses indignation among the public as well.

Mr. Tim Smith: I welcome clause 77 as long as we have the capital gains tax regime that we have. It is clearly unfair that rich people should be able to take advantage of what has been a major loophole in the law so to arrange their affairs that they can avoid altogether paying capital gains tax. It clearly has not been an option open to people with moderate amounts of capital, since the hon. Member


for Newcastle upon Tyne, East (Mr. Brown) has just said that it cost £2,000 to set up one of these schemes and £3,000 a year to keep it going. That would obviously preclude it from being economically viable for people with moderate amounts of capital. Clearly the schemes were designed for rich people, and if we are to have a captial gains tax system everybody should pay that tax and not take advantage of a loophole.
However, on the question of the likely yield, the Committee needs to recognise that a change of this kind will fundamentally change people's behaviour. That is why I object to capital gains tax as a whole. We were talking previously about the way in which people's economic behaviour is influenced by whether or not a particular activity is taxed. There should be no doubt in the minds of hon. Members about what happens with capital gains tax. It is impossible to avoid paying tax on purchases—virtually impossible to avoid paying VAT or excise duty—and it is pretty difficult to avoid paying income tax on income, because it is paid as it arises, but when it comes to capital gains tax, one can work very hard to avoid paying it by simply avoiding making the gain and not realising an asset.
That is what happens. Whether the figure for the cumulative lost revenue is £100 million or £1,000 million, the idea that the yield to the Exchequer will be anywhere near that is ridiculous. People who were realising their assets will think two, three or four times before they do it, so the actual yield will be much lower than any so-called loss of revenue to the Exchequer. There is no doubt about that.
That is the unfortunate aspect of all this. Capital gains tax above all taxes—one of my hon. Friends made a powerful speech on that on Second Reading—distorts economic behaviour. It is self-evident that, the higher the rate, the more likely it is that the behaviour will be distorted. With the benefit of hindsight, I think that change was regrettable. I understand why it was made. The Treasury took the view that it was sensible to operate capital gains tax at the same rate as the top rate of income tax, which is now 40 per cent.
I was encouraged by the remarks of the hon. Member for Newcastle upon Tyne, East, about Labour's proposals. He told my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) that Labour does not feel that it is absolutely necessary to operate the same rate. It is reassuring to know -that Labour does not intend to increase capital gains tax. Have I got that right?

Mr. Nicholas Brown: To avoid any doubt, I may say that we will have to live with what we believe to be a minor anomaly.

Mr. Smith: That makes the Opposition's policy clear beyond any doubt. I welcome that assurance, because any rate above 40 per cent. would be punitive, and would introduce distortion in a big way. That has already happened. There ought to be a much lower rate, or we ought to do away with capital gains tax altogether. It was introduced only as a short-term measure in 1961, and the Royal Commission that investigated its possibilities in the 1950s came out against it, for various good reasons.
Even with the change made by clause 77, the incidence of capital gains tax will still be fairly arbitrary and unfair. I will not detain the Committee with the details, because that would be to go beyond clause 77. However, although

the proposed change is very welcome, we must acknowledge that the yield is likely to be very low, and that the background against which that change is being made is anyway not very satisfactory.

Mr. Beith: There seems to be general agreement among all parties that clause 77 should be included in the Bill, and I certainly welcome it. It is designed to close a loophole that has existed for a decade which has been dramatically highlighted. That loophole has been known to tax advisers and experts for a long time, and it has taken a long time for the Government to get around to doing anything about it.
It is somewhat intriguing, given the timing of this debate, that Labour previously insisted that its incentives for investment could be met from the yield induced by closing the capital gains tax loophole. We included in our alternative Budget a proposition based on the assumption that closing the loophole would yield £500 million. Labour's alternative Budget is very specific:
The investment expansion scheme costs would be more than covered by the revenues from closing the tax loopholes for offshore trusts, which currently cost the Government £1000 million.
The Government produced a figure of £100 million, and, as the hon. Member for Newcastle upon Tyne, East (Mr. Brown) pointed out, the Red Book gives a figure of only £10 million for revenue resulting directly from closing the loophole in question. There is a necessary difference between the two figures, because presumably there would be a flow of investment into instruments that do bear taxation, which would show up in public revenue. I take that to be the major factor accounting for the difference in the two estimates.
When we produced our figures, and when Labour produced theirs, neither of us had the benefit of the Government's estimate of potential yield, because they were not canvassing any intention of acting against the loophole, and so had not produced a costing. However, the yield will obviously be a lot less than £1 billion. In view of the amount of money that is believed to have been involved, I hope that the Revenue gets back more than the £100 million that the Government estimated. I shall shortly propose amendments to tighten up the measure, to help achieve that objective.
There is general acceptance that it cannot be right, even at higher rates of capital gains tax, for methods of avoidance to be available that allow people with very large resources to spend significant sums on buying their way into overseas arrangements that entirely relieve them of their liability to capital gains tax.

Mr. Maude: This has been a delightfully ecumenical debate, with everyone agreeing that clause 77 is a splendid measure to introduce into the Bill. It is slightly remarkable that the hon. Members for Newcastle upon Tyne, East (Mr. Brown) and for Berwick-upon-Tweed (Mr. Beith) claim to have known about the abuse for some time, and have been clamouring to legislate against it year after year. They give the impression that, when the 1981 change was made, the loophole was transparently clear, and that it should have been closed then. History shows otherwise.

Mr. Nicholas Brown: I do not claim that the loophole was transparently obvious in 1981—at least, not to me. I became aware of it after reading Mr. Tutt's book in 1987—just at the time that I joined the shadow Treasury team. I may add that it is not I but the Government who are


professionally advised, and who have available to them, year after year, the opinions of the Inland Revenue. When did the Revenue first draw the abuse to the attention of Ministers? I bet that it was in 1981.

Mr. Maude: The reality is that no new clause or amendment to deal with the loophole was introduced until 1990. In that year, a new clause, to which the hon. Member for Newcastle upon Tyne, East, referred, was tabled but not selected. On that occasion, my right hon. Friend who is now the Patronage Secretary did not refer specifically to the loophole, because the burden of his plaint in that debate concerned dual resident companies, not nonresident trusts. He referred to it only obliquely and in passing, which did not become a serious problem until recently. However, it is now being dealt with expeditiously and thoroughly, as has been acknowledged.
I have some sympathy with my hon. Friend the Member for Beaconsfield (Mr. Smith), who made it clear that the higher the rate of tax, the more attempts there will be made to avoid it—and the more strenuous the tax authorities will need to be in preventing avoidance. That analysis is exactly correct. Members of the Oppostion Front Bench are nodding wisely and sagely, and appear to be agreeing with all that I say—but the points that I reiterate have not made much impact on the Labour party before now.

Mr. Nicholas Brown: I always smile, in my genial, good-natured way. That is not something that has been brought on by the present Financial Secretary, because I exhibited the same behaviour to the last three Financial Secretaries that it has been my pleasure to know. I will accept entirely the Financial Secretary's assurance that the Government acted as expeditiously as possible, but only if he will reveal when the risk that the 1981 change would be used for tax avoidance was first brought to the attention of the Government by their professional advisers—specifically, the Inland Revenue.

Mr. Maude: I do not intend to tell the hon. Gentleman what advice I or my predecessors were given by our official advisers—any more than the hon. Gentleman or any of his predecessors who were Ministers in previous Labour Governments would do. I am sorry to disappoint the hon. Gentleman, but, on mature reflection, I am sure that he will understand.

Mr. Brazier: He will get over it.

Mr. Maude: As my hon. Friend says, the hon. Member for Newcastle upon Tyne, East, will master his disappointment.
The hon. Gentleman referred to the mystery of the decimal point. Labour's standard approach is to multiply by 10 the estimated yield from a tax change, but to divide by 10 the cost of a public expenditure commitment. In reality, the measure—the hon. Member for Berwick-upon-Tweed had it right—will prevent a tax loss to the Revenue of about £100 million. It is not possible to be precise, but it will produce a yield this financial year of about £10 million, and in a full year of £15 million. There is no great pot of gold that the hon. Member for Newcastle upon Tyne, East can use to finance Labour's spendthrift policies.

Mr. Arbuthnot: Does my hon. Friend agree that, in view of the fact that the measure will stop a loophole, it will change people's behaviour and that there is no predicting the amount of revenue that can be produced? In a sense, it is a misnomer to talk about the revenue that might come from it.

Mr. Maude: My hon. Friend is entirely right. All one can do in such circumstances is to estimate to the best of one's ability on the basis of accumulated experience and the Inland Revenue what the yield might be from these changes. Behaviour will change as a result of the proposals, but the best estimate is that there will be a modest yield from transactions that will take place.
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This is one part of a three-part approach which is a considerably tougher and more extensive approach to the problem than that recommended by the hon. Member for Newcastle upon Tyne, East. It will be effective. The hon. Gentleman asked why we should not spread the effect on beneficiaries more widely so that more settlements would be caught. That is the subject of a subsequent debate on amendments to be tabled by the Liberal Democrats. We can explore it then, and I shall explain on that occasion the reason for the approach that we have adopted.

Question put and agreed to.

Clause 77 ordered to stand part of the Bill.

Orders of the Day — Schedule 14

SETTLEMENTS: SETTLORS

Mr. Beith: I beg to move amendment No. 3, in page 129, line 26, leave out 'child' and insert 'descendant'.

The Temporary Chairman: With this it will be convenient to take the following amendments: No. 4, in page 129, line 27, leave out 'child' and insert 'descendant'.

No. 6, in page 129, line 36, leave out 'child' and insert `descendant'.

No. 5, in page 129, line 36, leave out 'stepchild' and insert 'step-descendant'.

No. 10, in page 133, line 10, leave out 'child' and insert "descendant'.

No. 11, in page 133, line 11, leave out 'child' and insert 'descendant'.

No. 12, in page 133, line 20, leave out 'child' and insert `descendant'.

No. 13, in page 133, line 20, leave out 'stepchild' and insert 'step-descendant'.

Mr. Beith: The effect of this group of amendments would be to make the settlor potentially liable to tax if any descendant—not just the child—was a beneficiary. There is no obvious reason why the settlors should not be liable to tax on settlements made for the benefit of their grandchildren. The Minister referred to the possibility that a much wider limitation could be placed on overseas trusts affecting other potential beneficiaries. Perhaps he will be able to adduce particular reasons why that should not be so because of the other purpose for which trusts have traditionally been used. I do not see why a trust from which benefits for children are not tax-exempt should provide such an exemption in respect of grandchildren.

Mr. Maude: That is the point raised by the hon. Member for Newcastle upon Tyne, East (Mr. Brown).


From the temperate way in which the hon. Member for Berwick upon Tweed (Mr. Beith) moved the amendment, I deduce that he accepts that it is no great point of principle. I concede that, if this were the only part of the proposal—if clause 77 stood on its own without the exit charge and without the supplementary charge on settlements that are not caught by these proposals--there would be a case for extending the net a bit wider.
However, one must recognise that settlements are made in non-resident trusts for perfectly legitimate reasons which have nothing to do with tax avoidance. The burden of the amendment is to prevent tax avoidance and to bring transactions within the charge of tax where they should properly be subject to tax. Our judgment was that it was legitimate to restrict the ambit of this charge—the charge to the settler—to settlements of which the beneficiaries were the settlor's immediate family, drawn not all that closely, and extending, of course, to companies that the settlor's immediate family controls and to the immediate family itself.
As the hon. Gentleman knows, that is considerably wider than the corresponding definition for resident trusts, but we believe that it is necessary that it should be wider if an effective charge is to be imposed on those who settle assets abroad from which they or their family can derive benefit. The balance that we have struck is about right. It is a matter not of principle but of judgment as to where one strikes the balance. The gains of non-resident trusts where only grandchildren or remoter issue have an interest will continue to be within the existing provisions, which tax beneficiaries who receive capital payments from the trustees. They will be subject to the supplementary charge which, as I have said, is another important element in the new package and which will apply where appropriate.
In addition, we are strengthening the existing provisions to ensure that capital payments are chargeable when they are received by United Kingdom beneficiaries. We shall keep these measures under review, and we shall not hesitate to take further measures if they are thought appropriate. In the current circumstances, we have struck the correct balance.

Mr. Beith: I hope that the Minister will keep the amendments under review because it seems that he has not convinced even himself that the boundary line has been drawn in the right place. Grandchildren are among the most likely beneficiaries of someone who has made a great deal of money in his lifetime and who is looking for tax avoidance routes to keep it within the family and not pay tax in the process. It is a normal transfer from grandparent to grandchild. I shall not press the matter tonight, but I hope the Minister will keep it under review. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Beith: I beg to move amendment No. 9, in page 132, line 28, leave out 'four' and insert 'five'.

The Temporary Chairman: With this it will be convenient to take the following amendments: No. 8, in page 132, line 28, leave out '(6)' and insert '(6A)'.
No. 7, in page 133, line 7, at end insert—
'(6A) The fifth condition is that a person falling within sub-paragraph (7)(a) or (b) below is a person who will or might benefit from the settlement.'.

Mr. Beith: I shall describe the effect of the amendment in detail. Under the Bill as drafted, settlors of pre-Budget

settlements are in general caught only if the settlement is subsequently added to, varied or transferred out of the United Kingdom. If the settlors themselves are beneficiaries, there is a strong case for saying that they should be taxed on trusts that already exist in so far as those trusts give rise to income from now on.
The issue was raised as a result of a great deal of publicity given to some large trusts to which the hon. Member for Newcastle upon Tyne, East (Mr. Brown) referred. The public desire to see something done about it, and they will not be satisfied if those large trusts escape the ambit of the clause.
One must draw a careful line on retrospection. I have argued on many Finance Bills against the use of retrospection to create tax liability where one did not exist at the time. My argument now is not based on the creation of a new tax liability for income derived before the Budget. The purpose of the amendments is to deal with tax liability which will arise from now on, and of course, because of the nature of what we are discussing, they will effectively change the timing of tax payments. There are a number of precedents for going about it in this way, including the Inheritance Act 1974, which meant that discretionary trusts set up before 1974 became liable for subsequent inheritance tax.
One must ask whether people should have a permanent tax holiday merely because they were able to exploit a loophole before it was cleared up. Investors in overseas trusts would have been advised that the loophole was likely to be closed in the future. Those people often received advice from fairly sophisticated tax advisers.
There is a similar element of retrospection in schedule 15, which proposes a charge of 10 per cent. a year on the tax liability of pre-Budget settlements. The Government also accept that it might be a legitimate device to use to ensure that the income from now on of some of the settlements made before the Budget was made liable to tax.

Mr. Maude: I am keen to understand what the hon. Gentleman proposes. He talks about income from the trusts, which is a little puzzling. I can see that it would not be retrospection to say that income from a certain date should become liable for tax, and if one announced that from a date that was to be the case that could happen. A capital gain is a different matter. If a capital gain was realised today, for example, there might be a capital gain over a period right back to the rebasing in 1982.
I am not clear whether the hon. Gentleman proposes that the whole of that capital gain, going back beyond Budget day and the announcement of the proposals, should be subject to tax, or whether he proposes that it should be simply the part of the capital gain which has accrued since Budget day. If he proposes the former, that seems clearly——

The Temporary Chairman: Order. This is a very long intervention.

Mr. Maude: Perhaps I may draw to my peroration, Mr. Knox, and finish the point, which was meant to be short, although now I am afraid that I am in danger of having forgotten what it is.
Either the proposal would be retrospective if it were to bring into charge for tax all the capital gain from whenever it began to accrue, or it would simply apply to the part of


the capital gain which accrued since Budget day, in which case it would impose an impossible task of valuation of all assets in all non-resident trusts on Budget day.

Mr. Beith: I sought to advance the principle—which was rightly picked up by the Minister in his pertinent if lengthy intervention—that we should not give nonresident trusts a permanent tax holiday, but that we should avoid if we can introducing further dangerous precedents of retrospection to add to those in which the Government have engaged in previous Bills and elsewhere in the Bill. The clause about building societies is an example. I am trying to draw a line at the point of the Budget itself, and to move on from there. The Minister has made the perfectly legitimate objection that valuation problems are associated with that, and he may want to deal with that later.
I hope that the Minister will address himself to the central issue, which is that my concern was based on the large sums that have already been put into non-resident trusts. Those trusts will enjoy a permanent tax holiday if the Bill is not amended along the lines that I have proposed. There is a case for an amendment which does not create a retrospective tax liability going back before the Budget but which taxes such trusts in the future, leaving those who would otherwise benefit from them the opportunity of either paying the tax or transferring the assets to some other instrument.

Mr. Maude: I will endeavour to keep my speech shorter than my intervention. I appreciate that the point made by the hon. Member for Berwick-upon-Tweed (Mr. Beith) is serious. His concern is that there should not be a permanent tax holiday for existing trusts. I must make two points. First, a non-resident trust already set up under previous arrangements will have to remain untouched—no further beneficiaries added to it and no further funds added to it—for it to remain not subject to the charge introduced by clause 77. If no such changes are made, such trusts do not enjoy a permanent tax holiday if at any time the capital is repatriated to the United Kingdom. At the point at which the capital is delivered to a United Kingdom resident beneficiary, it will be subject not only to ordinary capital gains tax, but to the supplementary charge that we are also introducing which is specifically defined to reflect the lost value to the Exchequer of the deferment of that capital gains tax.
It is not possible to bring existing unchanged non-resident trusts within the new charge on the settlor without either being retrospective by imposing tax on gains that may have begun to accrue some time before Budget day or imposing on the Inland Revenue a gargantuan task of valuation which I am sure that the hon. Member for Berwick-upon-Tweed accepts would be hugely difficult. It would require a valuation on 19 March, or whatever the date of the Budget, of all the assets in all resident trusts so that one knew the base from which the capital gain was being calculated. That is not a terribly practical proposition.
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I do not believe that we are perpetuating a tax holiday. At the point when capital is repatriated, the gains will be subject not only to ordinary capital gains tax, but to the supplementary charge which is designed specifically for that purpose.

Mr. Beith: I am grateful to the Minister for considering the proposal. I will reflect on his point about valuation. I am touched that the Government are now worried about gargantuan valuation commitments placed on the Inland Revenue, especially when I consider the council tax, which will have precisely that effect. I will reflect on what the Minister has said and see whether either in this context or in the context of the charge at the stage of repatriation to which the Minister referred the point could be pursued later. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That this schedule be the Fourteenth schedule to the Bill.

Mr. Arbuthnot: The Country Landowners Association, whose taxation sub-committee I have the pleasure to serve, has raised some points with my right hon. Friend the Chancellor. I hesitate to raise them in detail at this stage, but I would like to run quickly through them in the hope that my hon. Friend the Minister will write to me about them afterwards. I do not ask my hon. Friend for a detailed reply at this stage.
The points raised by the Country Landowners Association mainly concern the question of what happens to a settlement that was made before 19 March 1991 which becomes subject to the regime set out in clause 77. The conditions on which a pre-19 March settlement becomes a qualifying settlement are quite complicated. They are set out in paragraph 11.
The first condition in paragraph 11(3) is:
on or after 19th March 1991 property … is provided directly or indirectly for the purposes of the settlement—
(a) otherwise than by way of a bargain made at arm's length".
Certain minor activities could make the entire settlement a qualifying settlement. In certain circumstances, if one simply added a first-class postage stamp to the settlement, one could make the entire settlement a qualifying one. There is an argument to suggest that only the new property which is added to a settlement after 19 March should be treated as a qualifying settlement rather than property that existed in the settlement beforehand.
The second condition that would mean that a pre-19 March 1991 settlement became a qualifying settlement is that the trustees of the settlement become non-resident after 19 March 1991. That could cause some difficulties unless the settlor himself has power to appoint or to reappoint the trustees. If he has no such power and if he has no say over who the trustees are, yet nevertheless becomes liable for capital gains tax on the settlement, that could cause some unfairness in some cases. I hope that my hon. Friend will look at that point and will come back to me on it.
The third condition is that a pre-19 March 1991 settlement can become a qualified settlement if there is a variation of the settlement after 19 March 1991. There are circumstances in which settlements might be varied—for example, a foreign court might vary a settlement. Those are circumstances over which the settlor would have no control and which could result in unfairness.
I ask my hon. Friend the Minister to write at some stage about these matters. I did not give him any warning that I would raise them this evening.
The idea is that a settlor should pay the capital gains tax in a qualifying settlement subject to his right to reimbursement from the trust. If a pre-19 March 1991 settlement becomes a qualifying settlement and therefore gives rise to a liability, would it be possible to have a revaluation of the assets at market value at the time when the settlement enters the regime of schedule 14? That would relieve the settlor of any gains or losses on any non-qualifying period.
I apologise for boring the Committee with these detailed and technical matters. I ask my hon. Friend the Minister to write at some stage, and hope that he will do so in the not-too-distant future.

Mr. Maude: The Committee will be disappointed that my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) has given me a let-out by inviting me to write to him rather than entertain the Committee by responding to the important matters that he has brought to our attention which I shall consider carefully.
We have carefully framed the proposals by which the new charge will apply to existing trusts in particular circumstances to avoid any element of retrospection. If I am right, it is broadly the possible, potential retrospection, if such a concept exists, which is troubling my hon. Friend. That is that an element of retrospection could be triggered other than by the deliberate and conscious act of the settlor or the trustees.

Mr. Arbuthnot: It is partly that and partly that some settlors will have been locked into certain arrangements from which they are unable to withdraw. It is because they are locked into certain arrangements that they find themselves liable to an entirely unexpected tax liability.

Mr. Maude: I understand what my hon. Friend says. Broadly, the settlor should, I would guess, always have the power not to add funds to the trust and hence not to trigger the pre-existing trust into becoming a qualifying one. If there are circumstances that could trigger the pre-existing trust other than that, we shall need to examine them carefully.
My hon. Friend said that there could be circumstances in which the settlor might have no power over the appointment of trustees, where a non-resident trustee might be appointed and thus trigger the settlement into becoming qualifying. It would be an odd appointment. It would be an odd decision for whoever had the power to make the appointment to act in that way in the knowledge that it would bring such a trust within the new regime, if it were possible in the circumstances that my hon. Friend outlined to avoid making such an appointment.
My hon. Friend talked of the power of a foreign court to amend the terms of a trust. I cannot comment on that now. It is a matter to which I shall give careful attention.
My note of my hon. Friend's following point came to an end after I had written "valuation". I cannot remember in more detail what it was, but I shall be glad to deal with it when I have had the benefit of refreshing my memory by reading Hansard.

Question put and agreed to.

Schedule 14 agreed to.

Orders of the Day — Clause 23

CHARGE AND RATE OF CORPORATION TAX FOR 1991

Question proposed, That the clause stand part of the Bill.

Mr. Chris Smith: The clause sets the rate of corporation tax prospectively for the financial year 1991–92. Our debate on clause 22 of an hour or so ago related to the rate of corporation tax which was being set retrospectively for 1990–91. We are glad that the Government are reverting in clause 23 to the principle of avoiding retrospection in setting the rate of corporation tax. It may be conceded that there is merit in retrospection in exceptional circumstances in terms of clause 22, but as a general principle it must be right that the rate of corporation tax should be set prospectively rather than retrospectively. It was one of the relatively few wise changes to the taxation system that the right hon. Member for Blaby (Mr. Lawson) made when he was Chancellor of the Exchequer.
Many of our arguments about clause 23 are precisely the same as those that we advanced a short while ago when considering clause 22. We welcome the relief that is given to many businesses by the reduction in the rate of corporation tax to 33 per cent. We must recognise, however, that the benefit is not felt substantially by smaller companies. We shall come on shortly to talk about the measures that the Government are proposing for small businesses. There will be no benefit whatsoever for companies which have profits of less than £200,000, so we are talking of a limited but welcome measure.
It must be recognised that the benefit that is brought by the clause is substantially outweighed in the relief that it gives by other measures contained in the Budget and the Bill. We must understand the impact on business of the rise in value added tax to 17·5 per cent. Many business commentators have noted perceptively that, while the rate of corporation tax gives businesses something, the rise in VAT takes something away from them. In current circumstances it is difficult for many manufacturers to increase the prices of their goods fully to reflect the additional 2·5 per cent.
I notice in passing that the Liberal Democrats have, perhaps temporarily, absented themselves from our company during these proceedings in Committee. I am surprised at that, given the importance of the clause that we are discussing.
The impact of the VAT change and its outweighing of the corporation tax measures has been commented upon in some surprising quarters. The National Federation of Self-Employed and Small Businesses Ltd., while giving a general welcome to the Budget, had one or two rather perceptive comments to make. The regional liaison officer for Yorkshire said:
The really small guy is not selling at the moment and the VAT increase will push his prices up even more.
The regional chairman for East Anglia said about the Budget:
It's like the curate's egg, good in parts. The Chancellor has juggled with figures and not helped the cash flow problems of small businesses.
It was precisely the changes to corporation tax in clauses 22 and 23 which were supposed to help with the cash flow problems of business. But clearly many business men and business women do not believe that that has happened.
Another commentator on the Bill, Coopers and Lybrand, said immediately after the Budget:


Most entrepreneurs are not going to believe current competition will allow them to increase prices immediately to this extent … they may well consider most of these measures"—
that is most of the measures on corporation tax—
are marginal to their cash flow problems in the face of the 2.5 per cent. increase in VAT and its consequences".
At about the same time Phillips and Drew said:
Although the reliefs on business taxation were welcome, they amount to no more than a teaspoon with which to hold back the recessionary tide.
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It is clear from the comments of many observers on the Bill and the measures which were supposed to help business that, while the Government's measures are welcome to a certain extent, they will not do much to help business in a real way. The verdict of Phillips and Drew that the measures will do little to stem the tide of recession will form much of the focus of our analysis of the Bill in Committee.
On clause 22 we said that the Government would have done much better to have targeted the help that they decided to give to business in order to boost investment in manufacturing industry. Precisely the same analysis applies to clause 23. In clause 22, the Government decided to allocate £380 million worth of Exchequer moneys to the relief that they provided in last year's corporation tax rate. In clause 23 they have decided to give extra relief amounting to £830 million in a full year.
Earlier the Government asked us what the Labour party's proposals would cost. Our answer is simple. The Government are spending a substantial amount in this clause on supposed support for business in the current financial year. We would have made different choices about how to spend that money. We believe that it could have been better targeted, produced better results and assisted more with the recovery that our economy needs.

Mr. Arbuthnot: Given the choice, would the Labour party reverse this decision? Given the choice, would it take us back to the 52 per cent. rate of corporation tax which applied when the Labour party was last in power?

Mr. Smith: I do not know whether the hon. Gentleman was present during our earlier debate. If he had been, he would have known precisely the answer to those questions. The answer to both questions is no. If the hon. Gentleman went on to ask how the Labour party would finance its proposals on capital allowances if we kept the rate of corporation tax envisaged in the clause, I would make one simple point to him. It is a point which Ministers and Back-Bench Conservative Members have failed to recognise about our proposals on capital allowances. We are talking about bringing forward capital allowance moneys for companies. It is money which the Exchequer would have forgone anyway in due course. We are talking about bringing the money forward into an earlier stage of the investment cycle to provide an incentive for the investment. It is not money that is forgone in the long term by the Exchequer. I hope that the hon. Gentleman understands that extremely important point.
The Opposition have recognised the absolute need to ensure that industry is encouraged to invest. At present our investment performance is sadly lacking. We have identified that as one of the cardinal problems afflicting the

British economy and we believe that, welcome though the Government's measures may be to some companies, they are not enough to stimulate the investment that our country needs.
The firm of Rathbones prepared an extremely good analysis of many of the proposals in the Budget. It could hardly be said to be in the pocket of the Labour party. It made some interesting comments on the role of business taxation and the measures in the Budget, especially those which deal with corporation tax. It noted that there was a danger that small companies would face a disincentive to invest because of the way in which the thresholds and ceilings were set. On page 11 of its Budget briefing it says:
In addition, the Chancellor has yet again ignored the calls to give specific reliefs for manufacturing industry. Presumably he feels that we are now a nation of service companies if not shopkeepers rather than manufacturers.
That was not the Labour party speaking. It was a firm commenting independently on the stance that the Government have taken in the Budget and the Finance Bill. It is not a stance that the Labour party shares. We believe that the cardinal need at present is to improve our investment performance in the manufacturing sector. Of course, we welcome the reduction in corporation tax this year to 33 per cent. But we cannot possibly agree with the Government's refusal to understand that allowances to boost investment are what our economy needs and what the Government should have considered more carefully.

Mr. Mellor: Having spent—perhaps one should say misspent—many years hacking around this place through great long Bills, many full of impenetrable verbiage, it is rather a treat to discuss a clause that states with great simplicity:
Corporation tax shall be charged for the financial year 1991 at the rate of 33 per cent.
While others may spring to instantaneous understanding of even the densest clauses of Bills, I usually have to look to my crib. But on this occasion the imposing piece of paper headed "Board of Inland Revenue", which is usually my guide, simply says:
This clause sets the rate of corporation tax for the financial year 1991 at 33 per cent.
Whatever other reservations may have been expressed about the Bill and, referring to an earlier debate, whatever problems of draftsmanship we may find when we go through the Bill in Committee—it is always a brave man who claims that any Bill that he has introduced is devoid of mistakes—clause 23 should at least win the prize for crispness and clarity. It makes clear what we are talking about, which is a start, even if we do not draw the same conclusions from it. Tempting though it is, I shall not repeat to the vast assemblage gathered for this purpose the comments that I made earlier. I should not wish to divert my constituent, Mr. Knox, whose rise to power is much appreciated by his Member of Parliament. I shall require him to read my earlier comments in Hansard.
Plainly, there is a philosophical difference between the hon. Member for Islington, South and Finsbury (Mr. Smith) and I. I do not necessarily think that it is the end of the world if other people do not agree—it is a perfectly reasonable thing for people to fall out about—but we believe that companies, possessed of the liquidity, can better decide what to do with the money. I gave the figures for the tremendous upsurge in investment in the 1980s, and the upsurge between 1986 and 1989 had much to do with the changes that my right hon. Friend the Member for


Blaby (Mr. Lawson) made in his 1984 Budget. The move to 33 per cent. gives us, once again, the keenest corporation tax rate in the European Community and, indeed, among the G7 countries. In 1984, a sharp reduction was made and others followed suit; we have taken the lead again.
It is the role of the hon. Member for Islington, South and Finsbury to pick holes in the argument, even though the Labour party does not criticise us for reducing corporation tax. The hon. Gentleman peddled the argument about capital allowances. I know that several substantial organisations share his view, but the arrangements already in place provide quite a substantial incentive for machinery and plant. Capital allowances for machinery and plant are 25 per cent. on a declining balance basis, which means that for tax purposes most of the cost of an asset can be written off over seven or eight years. If the average life of machinery and plant is about 17 years, as some have estimated, the ability to write it off over seven or eight years, given the current rate of corporation tax, is an attractive basis for companies to invest. I understand that others in industry who consider themselves hard pressed may be looking for another view, but I do not agree with that other view, although we listen to it with care.
The problem is that the Labour party is seeking to ride both horses at once; it wants the benefit of being able to say "Me too." We are asked to believe that a Labour Chancellor would reduce corporation tax—a pledge was given today not to increase it—and make capital allowances. That is all very well as a debating point, but it is not a substantial or convincing basis on which to look forward, as Labour alleges it is, to a period in Government. Governments must make choices; there is no such thing as a free lunch. We are all indebted to my right hon. Friend the Member for Blaby for making that one of the great cliches of our time. Capital allowances will cost a few hundred million pounds, but that must be paid for.
I am grateful for the clear way in which the hon. Member for Islington, South and Finsbury put his argument; the trouble with clarity is that it reveals problems that a more fudged presentation does riot. The hon. Gentleman, as always, was admirably clear. We do not agree on some of the conclusions that can be drawn, but we agree that this masterly, laconic drafting makes clear what we are trying to do—reduce the rate of corporation tax for the next year to 33 per cent. I hope that the Committee will endorse the clause.

Question put and agreed to.

Clause 23 ordered to stand part of the Bill.

Orders of the Day — Clause 24

SMALL COMPANIES

Question proposed, That the clause stand part of the Bill.

The Economic Secretary to the Treasury (Mr. John Maples): Clause 24 extends the benefit of small companies' relief from the corporation tax scheme by setting new limits that are substantially increased for the third year running. This year, the lower limit is increased from

£200,000 to £250,000, and the higher limit from £1 million to £1·25 million, which represents a 150 per cent. increase in the past three years.
We have done much to help small companies by reducing tax rates. Since 1979, the small companies' tax rate has been reduced from 42 per cent. to 25 per cent., which is the same as the basic rate of income tax. Small companies have benefited from that major achievement. As a result of this year's increase, 3,000 more companies will benefit from the small companies' rate, at which the vast majority of tax-paying companies pay tax. More companies will benefit from the marginal relief, and about 30,000 companies will pay less tax as a result of the increase this year.

Mr. Chris Smith: As the Economic Secretary said, clause 24 sets the level and the parameters of the small business rates of corporation tax for 1991. It possesses less of the laconic quality of clause 23, but none the less it sets out its intentions reasonably clearly.
Clause 24 consists of three parts—it sets the rate at 25 per cent., as it has been for the past year; it sets the profits limit for the small companies rate up to £250,000; and it sets the limit for marginal relief up to £1·25 million. The latter two changes are welcome to small businesses.
We must recognise, however, that those measures provide no help to businesses below the £200,000 1990 threshold. They will be marginally helped by the carry-back provisions, which we shall discuss in Standing Committee, but the clause offers them no additional help.
The clause will bring welcome but limited help. It must be considered, however, against the background of the wider economic recession. For small businesses, that recession has been caused by two factors—the level of interest rates and the introduction of the uniform business rate. In the debate on clause 19 of last year's Finance Bill, we drew attention to the impact of high interest rates on the small business sector.
The Government took many months before listening to us. They have now reduced interest rates to a certain extent, but to far too limited an extent. It is worth remembering that, under this Government, interest rates have been above 12 per cent. since August 1988—for a longer period than the total time of all the previous Governments since the second world war put together. That is the extent of the squeeze which the Government have placed on small businesses through high interest rates.
Only the other week, I visited several small firms in Woolwich. Business man after business man in small businesses spoke to me, not about corporation tax or the thresholds and ceilings at which the small companies rate bites, but about the level of interest rates, even after the recent snail-like reductions that the Chancellor of the Exchequer has been introducing. Interest rates have been their primary concern.
The other aspect that has been affecting small businesses is the introduction of the uniform business rate. It has had a differential impact in different parts on different industrial sectors and on different sizes of properties. Last year, 250,000 firms in Britain faced 100 per cent. increases in their rates bills as a direct result of the introduction of the uniform business rate.
Recently I visited some small businesses in York, especially in the retailing sector in the inner-city area. They found that the uniform business rate, together with overall


interest rates, was the principal cause of the difficulties that their firms were encountering. To tinker with the level and thresholds of the small companies rate of corporation tax may help the prospects of small businesses marginally, but it will not help much. For small businesses facing a recession, clause 24 does not provide much relief. The total value of the change which the Government are introducing in clause 24 is £20 million, yet the recession is causing enormous difficulty and pain throughout the country.
It is perhaps worth looking briefly at the figures which the Building Employers Confederation issued this morning. The press release which accompanies the spring "State of Trade Enquiry" contains several interesting comments. It is worth setting this beside some of the economic hype that we have heard from the Government during the past few days. They have tried to claim that the recession has turned the corner, that the economy is about to recover, and that economic optimism is on the increase. Indeed, earlier this afternoon the Chief Secretary to the Treasury talked about economic optimism surging forward. Clearly, he had not seen the BEC figures. It is worth remembering that its members account for more than three quarters of total construction industry output.
The press release states that the BEC
has charted a further sharp fall in output in the first quarter of 1991 compared with the fourth quarter of last year.
The main findings of its survey include:
The steep downward trend in output continuing;
A further rise in spare capacity in the industry; … 
A sharp fall in confidence about future workload; … 
Further job losses anticipated.
The press release continues:
The repair and maintenance sectors appear to have been particularly hard hit by declining demand.
It is precisely the repair and maintenance sectors of the construction industry that contain the most small businesses, as the detailed figures make clear.
Clearly, the recession has hit first companies with small numbers of employees. The percentage of firms reporting less work by size shows that, in the fourth quarter of last year, the very small firms—those with fewer than 114 employees—were suffering particularly from the recession. On average, 60 per cent. were experiencing less work than they had in the previous quarter.
Throughout this extremely interesting report from the BEC, the clear message is that business confidence is still falling, that output is still falling, that the recession is still intensifying and that it is hitting especially hard at the small companies end of that industrial sector. When the Chief Secretary tries to tell us that industry is about to flourish once again without any help from the Government, we are entitled to disbelieve him.
Earlier, I noted that the Chief Secretary claimed that the CBI survey, which came out last week, showed optimism on the increase. In his absence, I must tell him that it showed nothing of the sort. It showed optimism still on a downward trend and that fewer businesses were optimistic than were three months previously. Yes, the rate of decline in optimism may have slackened slightly, but declining it still is. It is important that the Government recognise that. It would be useful if from time to time they would acknowledge that rather than claim that a downturn in optimism is an upturn, because it is not.
The Government could have introduced a package of real measures to improve the prospects for industry, especially small companies. They could have accepted our proposals for investment allowances and introduced measures to implement a programme of training which is especially important for the small business sector. They could have removed the uniform business rate and returned to a locally determined form of business property taxation. They could have given a special boost to research and development. They could have transformed the business expansion scheme into something that benefited manufacturing industry instead of providing a tax haven for property speculators. They could have provided additional interest rate relief.
The Government did none of those things, which would have been a substantial package of measures for small businesses. What the clause contains may be worthy, but it is far too little, given the scale of the problems and the difficulties that afflict small businesses throughout the country. The Government have yet to recognise that truth.

Mr. Maples: The hon. Member for Islington, South and Finsbury (Mr. Smith) accuses this modest little part of the Finance Bill of not doing all sorts of things that it was never intended to do. It is part of a long-term programme of getting down the rates of corporation tax. While the hon. Gentleman is right to say that it will not cure the problems of the uniform business rate, or the recession, or sort out the construction industry, I think that on the whole companies would prefer to pay corporation tax at 25 per cent. rather than the 42 per cent. that they had to pay when his party was in power.
It is a measure that, to companies earning £250,000 a year, is worth £20,000. That is £20,000 more to invest in their business, either in working capital, or in plant and equipment. I should have thought that that would be welcome to them. We believe that on the whole it is better that people should pay lower rates of tax, and this is a move in that direction.

Question put and agreed to.

Clause 24 ordered to stand part of the Bill.

To report progress and ask leave to sit again.—[Mr. Greg Knight.]

Committee to report progress; to sit again tomorrow.

Maintenance Enforcement Bill [Loads]

As amended (in the Standing Committee), considered.

Clause 2

ORDERS FOR PERIODICAL PAYMENT IN MAGISTRATES' COURTS: MEANS OF PAYMENT

9 pm

The Minister of State, Home Office (Mr. John Patten): I beg to move amendment No. 1, in page 4, line 1, leave out `subsection (1)(a) above' and insert 'this section'.

Mr. Deputy Speaker (Sir Paul Dean): With this, it will be convenient to consider Government amendment No. 2.

Mr. Patten: This is a minor consequential amendment to clause 2. It is required because clause 59(7A), introduced as an amendment to the Bill this evening, contains a reference to a qualifying maintenance order. Because that phrase is used in clause 59(7A), it follows that the definition of that phrase which is given in clause 59(2) needs to be applied to the whole clause, not just to clause 59(1)(a).

Amendment agreed to.

Amendment made: No. 2, in page 5, line 16, at end insert—

'(7A) The Secretary of State may by regulations confer on magistrates' courts, in addition to their powers under paragraphs (a) to (d) of subsection (3) above, the power (the "additional power") to order that payments under a qualifying maintenance order be made by the debtor to the creditor or the clerk of a magistrates' court (as the regulations may provide) by such method of payment as may be specified in the regulations.
(7B) Any reference in any enactment to paragraphs (a) to (d) of subsection (3) above (but not a reference to any specific paragraph of that subsection) shall be taken to include a

reference to the additional power, and the reference in subsection (7C) below to the additional power shall be construed accordingly.
(7C) Regulations under subsection (7A) above may make provision for any enactment concerning, or connected with, payments under maintenance orders to apply, with or without modifications, in relation to the additional power.
(7D) The power of the Secretary of State to make regulations under subsection (7A) above shall be exercisable by statutory instrument and any such statutory instrument shall be subject to annulment in pursuance of a resolution of either House of Parliament.'.—[Mr. John Patten.]

Mr. John Patten: I beg to move, That the Bill be now read the Third time.
This Bill has had all-party support and deserves the support of the whole House.

Question put and agreed to.

Bill read the Third time, and passed, with amendments.

STATUTORY INSTRUMENTS, &c.

Motion made, and Question put forthwith pursuant to Standing Order No. 101(5) (Standing Order on Statutory Instruments, &amp;c.)

CIVIL SERVICE

That the draft European Communities (Employment in the Civil Service) Order 1991, which was laid before this House on 15th April, be approved.

DATA PROTECTION

That the draft Data Protection Registration Fee Order 1991, which was laid before this House on 25th March, be approved.—[Mr. Neil Hamilton.]

ADJOURNMENT

Resolved, That this House do now adjourn.—[Mr. Neil Hamilton.]

Adjourned accordingly at two minutes past Nine o'clock.